2 0 2 0 A N N U A L R E P O R T
Our purpose is to help achieve better outcomes for
the world’s investors and the people they serve.
Whether we are helping investment companies operate
more effectively, providing valuable market insights,
launching innovative investment products, or acting
sustainably, our role is focused on cultivating
collaborative partnerships.
As one of the world’s largest servicers and managers
of institutional assets, our success depends upon the
success of our stakeholders — our clients, employees,
investors, and the communities we serve. Our goal is
to help these stakeholders realize the best possible
outcomes for the future.
For more information, visit statestreet.com.
F O R W A R D T O G E T H E R
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Introduction
Message from Our Chairman and CEO
Financial Highlights
Message from Our Independent Lead Director
Business Review
Financial Review (Form 10-K)
A P P E N D I C E S
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Corporate Information
Board of Directors
Global Locations
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T H E W O R L D C H A N G E D F O R E V E R I N 2 0 2 0 .
The spread of a deadly new virus forced us to separate, while racial injustice showed
how differences have kept us apart. Economies faced recession and markets roiled.
Climate change sparked natural disasters, permanently altering landscapes and lives.
STATE STREET | 2020 ANNUAL REPORT 2
During the year, our resilient systems and dedicated employees came together
to confront these challenges. We made faster decisions, gained new perspectives,
and remained true to our goals. We connected with one another more deeply.
Our employees went to extraordinary lengths to help our clients, our communities,
and one another navigate virtual environments and solve unprecedented challenges.
We collaborated with regulators and helped keep the world’s financial markets
functioning, while managing record transaction volumes and huge market swings.
STATE STREET | 2020 ANNUAL REPORT
3
We supported our communities, volunteered our time, and donated money to essential
causes. We cared for one another. We held fast to our values and stayed focused
on the future, seeking new growth opportunities and better outcomes for our clients.
It was a transformative year that taught us how to be better partners — more creative,
compassionate, efficient, and nimble.
STATE STREET | 2020 ANNUAL REPORT
4
Now, as we move forward into a new, post-pandemic
world, we are better prepared to build a more resilient
and sustainable future …
T O G E T H E R .
STATE STREET | 2020 ANNUAL REPORT 5
N A T H A L I E G A U T H I E R
Vice President, Talent Marketplace
Black Professionals Group Co-Chair
Inclusion and Diversity Ambassador, Boston
“As I reflect on the year that was 2020, the words ‘perfect storm’ come
to mind. And much like after a storm, the clouds eventually disperse,
unsung heroes emerge, and silver linings appear. As we recover from
the crises, we choose to focus on healing together and amplifying
opportunities to enable more voices to be heard so we emerge stronger.”
Sculpture by Kristen Visbal.
Commissioned by State Street Global Advisors.
STATE STREET | 2020 ANNUAL REPORT 6
“ F O R U S A T S T A T E S T R E E T , W E C A M E T O G E T H E R L I K E N E V E R B E F O R E
I N T H E S E R V I C E O F O U R C L I E N T S , O U R E M P L O Y E E S , T H E G L O B A L
F I N A N C I A L M A R K E T S , A N D O U R C O M M U N I T I E S . ”
STATE STREET | 2020 ANNUAL REPORT 7
A M E S S A G E T O O U R S H A R E H O L D E R S
T H E V A L U E O F
R E S I L I E N C E
R O N A L D P. O ’ H A N L E Y
Chairman and CEO
April 6, 2021
With the possible exception of world wars,
no year has affected the lives of more people
than 2020. It is impossible to focus on the
performance of our business in isolation from
the pandemic, economic shutdown, historic
market volatility, the radical shift in working
and living conditions, and the racial and social
inequities that challenged all of us. And no other
year better illustrates the interconnectedness
of our stakeholders — shareholders, clients,
employees, vendors, policymakers, and
communities. The multiple crises of 2020
highlighted both strengths and weaknesses in
the public and private sectors and underscored
the value of resilience in everything we do.
I begin with thanks and remembrance. Thanks
to all those front-line and essential workers who
risked their health and lives for the rest of us.
And thanks to my State Street colleagues —
some of whom shifted to remote work and others
who needed to remain in the office — who each
worked tirelessly and met numerous challenges
to continue servicing our clients in an extra-
ordinary investment environment. Remembrance
for all of those who lost their lives or lost loved
ones, losses that continue to this day.
For us at State Street, the execution requirements
to serve our clients, our employees, the global
financial markets, our communities, and our
shareholders came together as never before.
These crises demanded an accelerated
delivery against our strategic priorities:
1. Become an essential partner when our clients
needed our counsel, responsiveness,
inventiveness, and operational support most;
2. Identify better and deeper ways for us to
take on more of our clients’ front-, middle-,
and back-office needs, underpinned by the
State Street AlphaSM platform;
STATE STREET | 2020 ANNUAL REPORT 8
3. Provide global technology scale and
operational resilience amid lockdown
conditions and record transaction volumes;
4. Demonstrate and model the behaviors of a
high-performing organization in anticipating
and responding quickly to clients’ challenges,
providing market insights, and finding
innovative solutions as conditions evolved.
Policymakers around the world, many with
experiences from the 2008 global financial
crisis, responded rapidly. In the U.S., the
federal government took unprecedented fiscal,
monetary, and policy actions and intervened
to attempt to blunt these crises. Massive
fiscal stimulus, injections of liquidity, and
interventions in the markets were undertaken
to instill confidence around the globe.
The health and safety of our employees,
their families, and our communities were our
overriding priority in 2020. Starting in China
in January and the rest of the world in March,
we rapidly moved more than 90% of our staff
to remote work at the same time that market
volumes and the needs of our clients rose to
peak levels. We reconfigured office space and
technology to keep our employees safe and
manage these new demands.
This shift and shutdown across most economies
spurred a significant and rapid contraction in
the United States and around the world, which
in turn triggered a broad financial market panic.
With unprecedented speed, unemployment
rose to 15%, while U.S. gross domestic product
shrank at an annualized rate of 30%.
Major banks acted in tandem with policymakers
and used their financial strength to implement
government programs and rapidly deliver stimulus
payments and loans.
In March, State Street and other Global Systemically
Important Banks volunteered to suspend
share repurchases to signal strength and our
commitment to support markets and clients.
As market volatility spiked, we had daily
consultations with policymakers on how to keep
markets liquid and fully functioning. State Street
also played a leadership role in helping to launch,
administer, and support many of the various
market liquidity and credit financing programs
introduced by policymakers, which in turn led to
the rapid stabilization of markets.
As I write, the U.S. President has just signed into
law an additional $1.9 trillion in fiscal stimulus.
Together with prior appropriations, Congress
has committed nearly $6 trillion in response
to the pandemic and its economic aftermath.
STATE STREET | 2020 ANNUAL REPORT 9
The long-term implications and outcomes
of government and central bank interventions
are unknown. Nonetheless, policymakers and
their banking system partners deserve credit
for their rapid actions that forestalled what
could have been an immense economic and
market collapse.
Overall, State Street adapted well to the unique
operating environment of 2020. Throughout 2020,
with our primary focus on health and safety,
we also positioned our business for future
success. Client and employee engagement scores
increased, new technology came online, total fee
revenue grew, and our operating expenses
continued to decrease.
The past year empowered, inspired, and
required all of us at State Street to simplify,
accelerate decision-making, and strengthen
our collaboration skills. Each of our employees
lived our purpose: to help the world’s investors
achieve better outcomes for the people they
serve. We are better positioned than ever to
deliver on our strategy and optimize the value
of State Street. I have never been prouder
than I am today as I reflect on the resilience,
passion, and fortitude of our people.
I am also grateful to our Board of Directors. This
thoughtful, diverse group of remarkable leaders
helped us pivot rapidly and provided meaningful
oversight and guidance throughout the year.
F I N A N C I A L P E R F O R M A N C E 1
Net income in 2020 was $2.42 billion compared
with $2.24 billion in 2019, an increase of 7.9%.
Earnings per share in 2020 were $6.32, an
increase of 17.5% from 2019. Return on equity
in 2020 was 10.0%. Earnings per share and
return on equity improved despite no share
repurchases after Q1 2020.
Assets under custody and/or administration
(AUC/A) rose to a record $38.8 trillion at
December 31, 2020, up 13% year over year,
driven by higher market levels, net new
business installations, and client flows.
State Street Global Advisors (SSGA) assets under
management (AUM) rose to a record $3.5 trillion
at December 31, 2020, up 11% year over year,
reflecting higher markets and strong exchange
traded fund (ETF) and cash net inflows, partially
offset by institutional net outflows. Our ETF
business had a very strong year, with total asset
flows up almost 30% year on year, reflecting the
important role our SPDR ETF franchise plays
in providing market liquidity.
Total 2020 revenue of $11.7 billion was down
0.5% (and largely flat, excluding notable items)
year over year, primarily driven by the lower
interest rate environment that depressed net
interest income (NII).
STATE STREET | 2020 ANNUAL REPORT 10
Y E A R A T A G L A N C E
2 0 20
2 0 19
Non-GAAP, excluding notables, where noted *
T OT A L R E V E NU E*
F E E R E V E NU E
N E T IN T E R ES T I NC O M E
T OT A L E X P EN S ES *
A S S E TS UN D E R C U S T O D Y AN D /O R A DM I N IS T RA T I ON
A S S E TS UN D E R MA N A G E M E NT
$11.7B
$11.7B
$9. 5B
$9. 1B
$2.2B
$2.6B
$8.5B
$8.7B
$38.8T
$34.4T
$3. 5T
$3. 1T
0 . 1 %
3 . 8%
14 . 3 %
1. 5 %
12.9%
11 . 3 %
E A R N I N G S P E R
S H A R E C H A N G E *
8.6%
R E T U R N
O N E Q U I T Y
10.0%
O P E R A T I N G
L E V E R A G E *
P R E T A X
M A R G I N C H A N G E *
140bps
50bps
* Excluding notable items, a non-GAAP presentation. See endnote 1.
STATE STREET | 2020 ANNUAL REPORT 11
T O T A L S H A R E H O L D E R R E T U R N
State Street Corporation
S&P Financial Index
KBW Bank Index
(10.3%)
(4.8%)
(1.7%)
23.1%
22.1%
29 .9%
(18.7%)
0.5%
13.0 %
24.5%
53.1%
69 .5%
R
A
E
Y
1
R
A
E
Y
2
R
A
E
Y
3
R
A
E
Y
5
STATE STREET | 2020 ANNUAL REPORT
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Fee revenue of $9.5 billion in 2020 was up
3.8% year over year, partially driven by strong
foreign exchange (FX) results, which were up
28.8% year over year. Our FX franchise had a
strong year in 2020 as a result of higher market
volatility and record client volumes. Our past
investments in talent, FX capabilities, and digital
platforms led to increased market share and
another No. 1 ranking in 2020 among asset
managers. Servicing fees and management
fees also increased in 2020, up 1.8% and
3.1%, respectively, versus 2019.
Charles River Development (Charles River)
demonstrated very strong revenue growth for
the full year, with total stand-alone Charles River
revenue up 14% year on year and Software
as a Service (SaaS) and professional services
revenues together growing 18% relative to 2019.
Low interest rates weighed heavily on NII
in 2020, which decreased 14.3% year over year.
This decline was partially offset by growth
in deposits, the investment portfolio, and
loan balances.
Expenses were down 1.5% year over year,
excluding notable items, notwithstanding the
significant new investments we made in
technology, capabilities, and people, reflecting
our well established expense discipline culture.
Excluding notable items, State Street delivered
full-year operating leverage of 1.4 percentage
points and a 50 basis point improvement in
pretax margin in one of the most challenging
years in recent history. We continued to transform
our operating environment and are beginning
to see true productivity improvements, which in
turn will drive higher quality and lower unit costs.
B U S I N E S S H I G H L I G H T S
Throughout 2020, we continued our intense
efforts to innovate, with further software and
operational development and delivery of the
State Street Alpha front-to-back platform, which
has gained traction with clients. Because of the
platform’s open architecture design, we are
able to rapidly increase functionality by adding
a number of partnerships to our platform,
unlocking new sources of revenue and enabling
greater flexibility and choice for clients. In 2020,
we announced partnerships with leading
analytics providers (Axioma, MSCI, and Solovis),
trading platforms (MarketAxess, Tradeweb,
and Broadridge LTx), and data and data-
warehousing providers (Snowflake and ICE).
STATE STREET | 2020 ANNUAL REPORT 13
“ W H I L E M A N Y F E A R E D T H A T C O V I D -1 9 W O U L D S I D E L I N E E S G I S S U E S ,
I N F A C T T H E E X P E R I E N C E U N D E R S C O R E D T H E I M P O R T A N C E O F
D R I V I N G E S G D E E P E R I N T O O U R C O R E B U S I N E S S S T R A T E G Y T O
S T R E N G T H E N O U R L O N G - T E R M R E S I L I E N C E . ”
The Alpha data platform now allows investment
teams to aggregate, normalize, and curate
disparate data sources across risk models and
analytics so they can act more quickly on invest-
ment insights. Charles River moved to a secure
public cloud solution that is now live with clients
and launched a Wealth Hub for managed account
program sponsors to securely connect with their
asset manager distribution partners.
We continued to integrate Charles River with
other State Street technologies to bring a more
seamless experience to our clients, including
integrating our Global Markets offerings and
developing end-to-end cash management
solutions. These are important differentiators
in the marketplace, as many investors continue
to struggle with aged and closed systems
that are difficult to integrate and coordinate
and thus impair investment outcomes.
The proof point of this strategy and investment is
client demand. In 2020, we signed six Alpha clients,
helping to accelerate the platform’s development,
and the Alpha pipeline remains strong.
While the Alpha platform is an integral part of
our growth strategy, we remain laser-focused
on continuous improvement within Investment
Servicing, which includes Institutional Services,
Global Markets, State Street Alpha,SM and
Charles River Development, and is the core
growth engine of our firm. By providing our
clients with leading custody, accounting,
and fund administration services and service
quality, we continue to drive better results.
As we emerge from the pandemic, we expect
that our clients will focus on outsourcing
more of their environment and look to us
to help them modernize and improve the
efficiency of their operations.
STATE STREET | 2020 ANNUAL REPORT 14
Building on the market-leading liquidity of its
equity ETFs, SSGA during 2020 focused on
further developing its fixed-income ETFs, which
experienced strong demand as investors sought
to access ETF secondary market liquidity. SSGA
is the third-largest ETF provider in the world,
with 11 of the top 20 most liquid ETFs in the
U.S. The SPDR ETFs represented approximately
40% of all U.S. ETF trading activity from late
February through early March. SPY alone —
the first U.S. ETF — saw 15 consecutive days
of secondary market trading of more than
$50 billion, including a record high day of
$113 billion. Additionally in 2020, SSGA launched
five SPDR environmental, social, and governance
(ESG) funds globally, three of which were fixed-
income funds, expanding its already large suite
of ESG offerings.
SSGA’s GLD and sector ETFs witnessed record
flows in 2020, as investors sought liquidity
and haven assets in turbulent and uncertain
markets. Sector and industry ETFs captured
$22 billion, or approximately 50% of market
flows, resulting in increased market share in
2020 (41% of the combined Sector and Industry
AUM). Between GLD and our low-cost gold
ETF (GLDM), SSGA now holds the No. 1 and
No. 3 positions, respectively, in gold ETFs.
SSGA’s low-cost ETFs saw inflows in 2020 of
$21 billion, and significant market share gain
(8% share of flows vs. 4% share of AUM).
E N H A N C I N G O U R O P E R A T I N G M O D E L
Our Investment Servicing client base consists
of asset managers, asset owners, and official
institutions. While the needs of segments differ,
we are able to deliver much of the core function-
ality from shared capabilities. In recognition
of this, we streamlined our own investment
servicing operating model into three divisions
— Institutional Services (clients); Product,
Platforms, Technology, and Operations; and
Productivity and Delivery — to drive better
execution and accountability.
State Street has been on a journey to transform
its operating model for the past two years.
In 2020, we continued to make progress on
simplifying and standardizing operations across
the franchise. For example, we retired more than
230 of our applications and released a new AI
machine learning application that allows us to
produce net asset value (NAV) benchmarks for
12,000 funds with continuous quality control
during the pricing window. Since 2018, we have
reduced manual touches to data by back-office
servicing operations by about 20%, with
automation improving client satisfaction and
reducing unit costs.
We also launched a global data center
consolidation plan, which will enable us
to further modernize and improve the
resilience of our infrastructure as we
decommission sites in the coming year.
STATE STREET | 2020 ANNUAL REPORT 15
We plan to deliver further improvements
during 2021 to drive costs lower, self-fund
investments for the future, and transform how
we compete and operate in the years ahead.
E S S E N T I A L P A R T N E R
Being our clients’ essential partner requires
us to continuously improve our capabilities to
meet our clients’ growing needs. We continued
to build on State Street’s capabilities, expanding
from our focus on fund services to include
enterprise outsourcing capabilities applicable
to all investors (asset managers, asset owners,
insurance companies, alternatives investors,
and official institutions).
We continue to partner with clients across a
full range of outsourcing capabilities to build
and link the back, middle, and front office,
including trading, analytics, liquidity, third-
party execution venues, financing, and data.
Our differentiated front-to-back platform is
fully interoperable to enable us to service other
platforms and to shape how other industry
platforms operate. Our services enable our
clients to modernize their infrastructure,
accelerate time to market for new products
and new clients, expand distribution, and
build resiliency into their operations, while
reducing technology and operating costs.
2 0 2 1 G O A L S
Looking forward to 2021, we are focused
on three key objectives: Grow Revenue;
Transform the Way We Work; and Build
a Higher Performing Organization.
I . G R O W R E V E N U E
In the coming year, we expect to deliver fee
revenue growth by improving our client engage-
ment and sales effectiveness, advancing our
suite of products and capabilities, and continuing
to position SSGA for growth.
A foundational element of our growth strategy
is based on the loyalty and earned trust from our
existing clients and evolving those relationships
to strategic partnerships by delivering our full
value proposition. Starting in 2018, we established
our Global Clients Division to meet the needs of
our most sophisticated clients. Building on this
success, we are further extending this successful
client service model to cover our top 350 clients.
We need to continue to service our clients
exceptionally well, which includes continuous
improvement; increased accuracy; accelerating
delivery times; and moving clients to better
and more automated solutions.
STATE STREET | 2020 ANNUAL REPORT 16
Delivering for clients delivers growth. We have
created tailored value propositions and service
plans by segment (asset owner, asset manager,
insurers, alternatives managers, and official
institutions) and by region to increase account-
ability for client and regional strategic objectives.
I I . T R A N S F O R M T H E W A Y W E W O R K
The pandemic highlighted many operational
strengths across State Street’s organization, which
we are institutionalizing to drive better results.
We will continue to build on the productivity
transformations that will reduce manual hand-
offs and cycle times and increase accuracy.
By automating repeatable processes, we are
able to redeploy our people to higher value-
add roles, which in turn we expect will lead to
greater productivity and more innovation, as
well as reducing the costs to serve our clients.
As the pandemic abates, we need to capitalize
on what we have learned about work from the
past year. We are leveraging the lessons of 2020
and are beginning to roll out our Workplace of
the Future plan. This will include hybrid work
models, new approaches to real estate, and new
ways of collaborating with clients and employees.
I I I . B U I L D A H I G H E R
P E R F O R M I N G O R G A N I Z A T I O N
An important objective for 2021 is building
on the cultural strength and resilience we
saw in our workforce in 2020 to promote
an even higher performing and productive
organization. We will continue to simplify the
organization and incentivize behaviors that
drive strong results and even higher client
and employee engagement and satisfaction.
We also witnessed how the pandemic reinforced
the connections between corporate resilience
and the ESG issues that we have highlighted
over the past few years. State Street was an
early leader in ESG, both on behalf of clients
and in how we run our business. While many
feared that the crises of 2020 would sideline
ESG issues, in fact the experience of COVID-19
underscored for all of us the importance of
driving ESG deeper into our core business
strategy to strengthen our long-term resilience.
Research from our State Street Associates
partner, Harvard ESG expert Professor
George Serafeim, demonstrated that
companies with strong ESG characteristics
suffered smaller stock price declines
during the coronavirus crash than industry
peers with weaker ESG characteristics.
STATE STREET | 2020 ANNUAL REPORT 17
In 2020, we elevated the importance of
ESG by appointing new leadership to coordinate
our efforts across the organization and
leverage what we do externally and internally,
which we expect will generate long-term
value for our shareholders, clients, employees,
and communities.
We are fully integrating and leveraging what
we do in ESG in managing portfolios, servicing
assets, analyzing data, and running our firm to
help us achieve better outcomes for all stake-
holders. We drive ESG action on four levels.
First, in our asset servicing business, we help
clients to analyze and report on their ESG
attributes, especially as more jurisdictions
introduce mandatory disclosure. Our capabilities
in data analytics and management provide us
the foundation to help our clients meet their
rising ESG data needs and fully incorporate
ESG into their investment risk frameworks.
Second, in our asset management business,
we engage with listed companies and their
boards on ESG issues that drive long-term value
through our asset stewardship, which is one
of the most impactful ways we can promote
positive change. We continue to launch research-
driven ESG strategies and help global asset
owners integrate ESG value drivers across
their entire investment risk frameworks.
Third, we incorporate ESG value drivers into
our own business to strengthen our long-
term resilience and sustainability, whether
that is in the area of climate risk mitigation
or improved inclusion and diversity and
better human capital management. In 2020,
we were proud to announce that all of our
global operations became carbon-neutral,
as we continue to reduce our absolute
emissions on the journey to net zero.
Finally, we are also leveraging our global
platform and industry associations to scale our
ESG impact, driving action on the sustainability
and equity issues that are central to a more
resilient future, not just for us and our share-
holders, but for the broader communities in
which we live and work. The long-standing
racial inequities exacerbated by the pandemic
led us to launch State Street’s 10 Actions to
Address Racism and Inequality (see page 67).
Consistent with our 10-point action plan, we are
examining and leveraging both our commercial
and community relationships. For example,
we are partnering with minority- and women-
owned firms when we periodically raise capital.
Through the State Street Foundation we will
continue to support education and workforce
development opportunities for underserved
communities of color, and hold ourselves
accountable for improving our own racial and
ethnic diversity.
STATE STREET | 2020 ANNUAL REPORT 18
We also contributed to the New Commonwealth
Racial and Social Justice Fund, co-founded
by Chief Diversity Officer Paul Francisco.
Small businesses have suffered disproportionately
in the current economic crisis. Despite the
government assistance provided over the past
year, many small businesses, particularly those
with 10 employees or fewer, have been unable
to tap this assistance. Application requirements,
lack of skills to access help, or simple lack of
knowledge are among the reasons for the
under-participation. In our headquarters’ state
of Massachusetts and many other parts of the
world, minorities and women represent a
disproportionately large number of small
businesses, which has been one reason why
unemployment among women and racial
minorities remains stubbornly high.
To help address this problem, State Street,
with the help of other large companies, launched
Small Business Strong to aid small businesses
owned by minorities and women. The distinctive
value proposition of Small Business Strong,
which delivers free digital and personalized
advice at scale, has assisted 1,226 businesses
in Massachusetts since inception less than a
year ago. We look forward to institutionalizing
and extending this service.
In this year of the 26th U.N. Climate Change
Conference (COP26) and heightened focus on
climate action, State Street is honored to lead
the Taskforce for Asset Managers and Asset
Owners within His Royal Highness The Prince
of Wales’ Sustainable Markets Initiative to drive
sustainable investment projects that will have
an outsized positive impact on the protection
of people and planet. We are also a founding
Guardian of the Council for Inclusive Capitalism
with The Vatican, joining other global business
leaders to build a more inclusive and equitable
future for all of our stakeholders. At a time when
we are faced with many complex challenges,
State Street has a distinctive opportunity to be
a force for positive change.
A R E S I L I E N T F U T U R E
As we reflect on 2020, perhaps the most
significant takeaway is the pervasive importance
of resilience. For an institution like State Street,
resilience is a core value. Operational resilience,
technological resilience, and financial resilience
are foundational to our strategy and our ability
to serve our clients.
The experience of 2020 illustrates the importance
of resilience across business, community,
society, and government. The year also raises
questions as to whether each of these segments
has invested sufficiently in or paid enough
attention to resilience.
STATE STREET | 2020 ANNUAL REPORT 19
After the 2008 global financial crisis, financial
institutions, governments, regulators, and
society determined that many financial
institutions had underinvested in financial
resilience. Through a comprehensive series
of legislation, regulation, and governance
changes, the resilience of the financial
system and large banks worldwide was
upgraded and strengthened. Many of these
changes were expensive, and today most
large financial institutions carry significantly
more capital and liquidity than they had
going into the global financial crisis, and have
sophisticated processes to help manage
and ensure their financial strength. It is
undoubtedly true that the financial institutions
sector is more financially resilient today
than it was in 2008. Banks were part of the
solution rather than the problem in 2020.
After 2020, society and business at large
must ask whether we need similar invest-
ments in resilience in many other areas
as we consider the following questions:
• Why were so many developed countries
so unprepared to manage the COVID-19
pandemic? What has happened to public
health infrastructure and preparedness?
• Do the shortages suffered by hospitals,
governments, and households during
the pandemic suggest a need to invest
much more in supply chain resilience?
• Can we continue to accept heightened health
risks and poorer treatment outcomes for
the most disadvantaged in our society?
• As we see increased ravages from
climate change, how much longer can
we defer infrastructure resilience and
carbon sequestration investments?
These questions are not simple, and the answers
are even harder. But the common thread that
runs through all of them is the reality that while
resilience comes at a cost, the lack of resilience
can come at an even greater and graver cost.
As individuals, businesses, and societies, we
need to confront these trade-offs and make
clear, explicit decisions regarding resilience.
The past year was full of challenges, but it was
also an opportunity for us to focus on what
we truly value as well as better ways to create
value for all we serve. Rather than returning
to a pre-pandemic “normality,” we need to
move forward together to a stronger future,
fortified by how we came together to serve
our stakeholders and achieve our financial
goals. As we look to a new beginning beyond
COVID-19, we will build on the lessons of 2020
around the value of engagement, partnership,
inventiveness, service, and, above all, resilience.
Thank you for your continued trust in us.
STATE STREET | 2020 ANNUAL REPORT 20
F O R W A R D - L O O K I N G S T A T E M E N T S
This annual report contains forward-looking statements as defined by U.S. securities laws.
Refer to Item 1A of the Form 10-K included within this annual report for details.
2 0 2 0 R E C O N C I L I A T I O N O F N O N - G A A P F I N A N C I A L I N F O R M A T I O N
i Results excluding notable items are non-GAAP measures. Refer to the reconciliation of non-GAAP financial information below.
In addition to presenting State Street’s financial results in conformity with U.S. generally accepted accounting principles, or GAAP, management also presents
certain financial information on a basis that excludes or adjusts one or more items from GAAP. This latter basis is a non-GAAP presentation. In general, our
non-GAAP financial results adjust selected GAAP-basis financial results to exclude the impact of revenue and expenses outside of State Street’s normal
course of business or other notable items, such as acquisition and restructuring charges, repositioning charges, gains/losses on sales, as well as, for selected
comparisons, seasonal items. For example, we sometimes present expenses on a basis we may refer to as “expenses ex-notable items,” which exclude notable
items and, to provide additional perspective on both prior year quarter and sequential quarter comparisons, also exclude seasonal items. Management believes
that this presentation of financial information facilitates an investor’s further understanding and analysis of State Street’s financial performance and trends with
respect to State Street’s business operations from period to period, including providing additional insight into our underlying margin and profitability.
Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in conformity with GAAP.
YEARS ENDED
% CHANGE
2019
2020
2020 VS. 2019
DILUTED EARNINGS PER SHARE
Diluted earnings per share, GAAP basis
$5.38
$6.32
17.5%
Less: Notable items
Acquisition and restructuring costs(1)
Repositioning charges
Legal and related
Other income
Preferred securities redemption(2)(3)
Diluted earnings per share,
excluding notable items
TOTAL REVENUE
0.16
0.22
0.44
(0.09)
0.06
$6.17
0.10
0.27
(0.02)
-
0.03
$6.70
Total revenue, GAAP-basis
$11,756
$11,703
Less: Other income
(44)
-
Total revenue, excluding notable items
$11,712
$11,703
8.6%
(0.5)%
nm
(0.1)
STATE STREET | 2020 ANNUAL REPORT 21
YEARS ENDED
% CHANGE
2019
2020
2020 VS. 2019
EXPENSES
Total expenses, GAAP-basis
$9,034
$8,716
Less: Notable items
Acquisition and restructuring costs(1)
Repositioning charges
Legal and related
(77)
(110)
(172)
(50)
(133)
9
Total expenses, excluding notable items
$8,675
$8,542
OPERATING LEVERAGE,
EXCLUDING NOTABLE ITEMS
Total revenue, excluding notable items
Total expenses, excluding notable items
Operating leverage, excluding notable items
PRETAX MARGIN
$11,712
$8,675
$11,703
$8,542
(3.5)%
(35.1)
20.9
nm
(1.5)
(0.1)%
(1.5)
140 bps
Pretax margin, GAAP-basis
23.1%
24.8%
170 bps
Less: Notable items
Acquisition and restructuring costs(1)
Repositioning charges
Legal and related
Other income
Pretax margin, excluding notable items
0.7
0.9
1.5
(0.4)
25.8%
0.4
1.2
(0.1)
-
26.3%
50 bps
(1) Acquisition and restructuring costs of approximately $50 million in 2020, consisting primarily of acquisition costs related to Charles River Development.
(2) We redeemed all outstanding Series C noncumulative perpetual preferred stock on March 15, 2020, at a redemption price of $500 million ($100,000 per share
equivalent to $25.00 per depositary share) plus accrued and unpaid dividends. The difference between the redemption value and the net carrying value of
approximately $9 million resulted in an EPS impact of approximately ($.03) per share in 2020.
(3) We redeemed all outstanding Series E noncumulative perpetual preferred stock on December 15, 2019, at a redemption price of $750 million ($100,000 per
share equivalent to $25.00 per depositary share) plus accrued and unpaid dividends. The difference between the redemption value and the net carrying value
of approximately $22 million resulted in an EPS impact of approximately ($.06) per share in 2019.
‘nm’ denotes not meaningful
STATE STREET | 2020 ANNUAL REPORT 22
“ D U R I N G O N E O F T H E M O S T C H A L L E N G I N G Y E A R S I N L I V I N G M E M O R Y ,
I A M P R O U D O F T H E C O M P A N Y ’ S P E R F O R M A N C E A N D T H E W A Y T H A T
T H E B O A R D W O R K E D W I T H M A N A G E M E N T T O P R O V I D E O N G O I N G C O U N S E L
A N D C H A L L E N G E T O H E L P T H E B U S I N E S S A D J U S T T O A C O M P L E T E L Y
N E W W A Y O F O P E R A T I N G . ”
STATE STREET | 2020 ANNUAL REPORT 23
T O M Y F E L L O W
S H A R E H O L D E R S
D A M E A M E L I A C H I L C O T T F A W C E T T
Independent Lead Director, DBE, CVO
April 6, 2021
As State Street’s Independent Lead Director,
I want to thank you, on behalf of the entire
State Street Board, for investing in State Street.
During one of the most challenging years in
living memory, I am proud of the company’s
performance and the way that the board worked
with management to provide ongoing counsel
and challenge to help the business adjust to
a completely new way of operating as the
COVID-19 pandemic spread across the world.
Thousands of State Street workers moved to
remote working conditions as economies shut
down and markets exhibited historic volatility.
Amid these unprecedented circumstances,
State Street’s teams were nevertheless able
to process record levels of transactions,
onboard new business, launch new products,
and enhance the functionality of the distinctive
State Street AlphaSM data and servicing
platform. We should be rightfully proud of the
way teams came together to provide service
excellence under the most trying conditions —
a clear demonstration of the responsiveness
and inventiveness that mark high-performing
organizations. The primary role of the board
is to exercise effective oversight: approve
management’s long-term business strategy
and then hold management accountable for
successfully executing that strategy. Even
under the extraordinary circumstances of
2020, management continued to position the
business for long-term growth, increasing
fee revenue growth and continuing to reduce
costs, while investing in the business.
The board is also pleased to welcome as
directors Julio A. Portalatin, former president
and CEO of Mercer, and John B. Rhea, partner
at Centerview Partners. Each was elected
earlier this year. Both understand the challenges
and opportunities facing our global client base
and bring to our board significant business and
industry experience, as well as independent
judgment with a balanced perspective.
STATE STREET | 2020 ANNUAL REPORT 24
D U R I N G 2 0 2 0 , S T A T E S T R E E T
C O N T I N U E D T O P O S I T I O N
T H E B U S I N E S S F O R L O N G -
T E R M G R O W T H , S E T T I N G
F E E R E V E N U E G R O W T H I N
T H E R I G H T D I R E C T I O N
A N D D R I V I N G D O W N C O S T S ,
W H I L E C O N T I N U I N G T O
I N V E S T I N T H E B U S I N E S S .
A M E L I A F A W C E T T
Independent Lead Director
STATE STREET | 2020 ANNUAL REPORT T H E B O A R D W E L C O M E S T W O N E W D I R E C T O R S
25
J U L I O A . P O R T A L A T I N
Former President and CEO of Mercer
J O H N B . R H E A
Partner at Centerview Partners
Their leadership will enhance the diversity of the
board’s perspectives and thinking as we execute
our oversight responsibilities going forward.
We know that strengthening those characteristics
is good for business performance and therefore
good for long-term shareholder value.
The multiple crises of 2020 revealed the
importance of strengthening resilience in all we
do: from business continuity and operational
reliability for clients to financial market support,
risk controls, and employee engagement. In
fact, the pandemic dramatically underscored
the correlation between corporate resilience
and environmental, social, and governance
(ESG) issues. As a result, the board welcomes
management’s decision to further elevate ESG
as a strategic business priority and to embed
ESG value drivers throughout the business.
We embrace our oversight responsibility
of State Street’s ESG priorities around
sustainability, inclusiveness, and diversity.
We also saw how the pandemic exacerbated
long-standing racial and social inequities that
degrade our common humanity and weaken
the resilience of the communities in which we
operate. The board supports State Street’s
commitment to combat systemic racism with
its 10-point action plan and stands ready to hold
management accountable for those objectives.
Thank you again for your continued trust and
investment in State Street as we unite to build a
more resilient, prosperous, and equitable future
for our business and for all of our stakeholders.
STATE STREET | 2020 ANNUAL REPORT 26
STATE STREET | 2020 ANNUAL REPORT 27
B U S I N E S S R E V I E W
F O R W A R D T O G E T H E R
28
36
44
50
56
62
72
Institutional Services
State Street AlphaSM
Global Markets
State Street Global Advisors
Operational Leadership and Technology
Culture and Community
ESG 2020 Highlights
STATE STREET | 2020 ANNUAL REPORT 28
“ T H E D I F F E R E N C E B E T W E E N A P R O V I D E R A N D A P A R T N E R I S T H A T
A P A R T N E R C O - I N V E S T S W I T H Y O U , U N D E R S T A N D S Y O U B E T T E R ,
I S M O R E C O M M I T T E D , A N D G O E S T O A N Y L E N G T H T O D E L I V E R . ”
F R A N C I S C O A R I S T E G U I E T A
Chief Executive Officer and Head of Institutional Services, Hong Kong
STATE STREET | 2020 ANNUAL REPORT 29
I N S T I T U T I O N A L S E R V I C E S
R E D E F I N I N G T H E
C L I E N T E X P E R I E N C E
While 2020 was a year of extra-
ordinary challenges, it was also a
year of remarkable achievements
in our asset servicing business, as
our employees around the globe
stepped up to serve clients with
resilience, ingenuity, dedication, and
fortitude — strengthening our client
relationships and further solidifying
our role as a trusted partner.
The plans we had in motion prior
to the pandemic kept us on track
to deliver superior client service,
deploy leading-edge solutions, and
continue our strategic pivot from
our traditional role as a fund service
provider to an essential enterprise
outsourced solutions partner.
With the launch of our Institutional
Services* group, we have further
refined and intensified our focus
on delivering a comprehensive,
holistic approach to each client
relationship — for asset managers
and owners, insurance companies,
and official institutions globally.
By aligning all of our client-facing
functions under one umbrella, we’re
consistently bringing the very best
solutions and services the firm
has to offer — across all of our
locations, products, and capabilities.
* Our Investment Servicing business includes
Institutional Services, Global Markets,
State Street AlphaSM, and Charles River Development.
STATE STREET | 2020 ANNUAL REPORT 30
V O I C E O F T H E C L I E N T
P I M C O
Jonathan May, Head of Enterprise Risk
“With the 2020 onset of the pandemic, State Street became not only a trusted service provider, but a
critical partner in ensuring the continuity of our operations and the safety of our employees. Whether
it was affording us facilities access to accommodate a contingency trading site or maintaining constant
connectivity during the devastating Southern California wildfires, we had confidence that State Street
was taking all necessary actions to help protect our business, our employees, and our clients’ trust.”
S T R E N G T H E N I N G O U R
C L I E N T - C E N T R I C M O D E L
In 2020, we executed on plans to enhance
our institutional services business model
and further our goal of achieving sustainable
revenue growth over time. Armed with
lessons from the successful client coverage
model we launched two years ago, we
focused on expanding our client coverage
organization to provide the highest quality
service to an even broader range of clients.
Understanding that each client segment has its
own unique challenges — sometimes differing
by region — that require bespoke solutions
to address them, we strengthened our client
segment strategy during the year.
We have already made significant progress here,
availing our alternatives asset manager, asset
manager, asset owner, and insurer clients with
expanded offerings and technology solutions.
During the year, we also added new capabilities
to our State Street AlphaSM front-to-back
investment servicing platform through a
number of industry partnerships. For example,
we are now leveraging multi-asset class
platform provider Solovis to help ensure that
our asset owner clients can more accurately
measure investment performance. Solovis
delivers consolidated performance data —
including alternative asset and third-party
data — on a single platform, powered by our
Alpha Data Services (see pages 36-43
for more information about Alpha).
Our alliance with outsourced services
provider Coremont allows us to offer fully
integrated outsourcing services for hedge
fund clients, covering front-, middle-,
and back-office operations, with broader
portfolio management analytics including
derivatives modeling and processing.
STATE STREET | 2020 ANNUAL REPORT 31
“ P A R T N E R S H I P I S A B O U T P U T T I N G Y O U R S E L F I N
Y O U R C L I E N T S ’ S H O E S . I T ’ S B E I N G P R O A C T I V E ,
A N T I C I P A T O R Y , A N D U N D E R S T A N D I N G W H A T
T H E Y A R E G R A P P L I N G W I T H . ”
D O N N A M I L R O D
Head of Asset Managers Segment and
Global Clients Division, New York
This solution delivers a single, consolidated
set of records between portfolio managers
and administrators, enabling greater data
transparency and risk reduction. Our partner-
ship with SimCorp is helping meet the needs
of insurance company clients in Europe, the
Middle East, and Africa, with an investment
outsourcing solution that delivers operational
efficiency along with accurate, timely, and
high-quality data for their operations.
State Street’s servicing capabilities span more
than 100 markets globally,* and our clients
look to us for support as they seek growth
across geographic borders. To better service
their global growth ambitions, we appointed
regional and country heads in key Asian
and Latin American markets, and expanded
our footprint in the Middle East, opening
a new office in Riyadh, Saudi Arabia.
*State Street Investment Manager Guide, February 5, 2021
Our new regional strategy focuses on developing
country-level plans, applying regional expertise
and leadership, and further optimizing our global
operating model. By realigning our client-facing
and service support groups to make it easier for
clients to interact with us, we streamlined our
business development and investment servicing
operating models to drive better execution, deepen
client relationships, and power future growth.
B U I L D I N G R E L A T I O N S H I P S ,
D R I V I N G P E R F O R M A N C E
In our asset servicing business, we reported
record assets under custody and/or admin-
istration of $38.8 trillion at December 31, 2020,
a year-over-year increase of 13%. Business
wins totaled $787 billion in 2020 — yet another
reflection of our ability to serve as our clients’
essential partner during one of the most
challenging years in recent memory.
STATE STREET | 2020 ANNUAL REPORT 32
“ W E F O C U S E D O U R T E C H N O L O G Y I N V E S T M E N T
P O R T F O L I O O N E N T E R P R I S E - W I D E P R O D U C T S
A N D S O L U T I O N S R A T H E R T H A N I N V E S T M E N T
I N S P E C I F I C A R E A S W I T H L I M I T E D U S E . ”
B R E N D A L Y O N S
Global Head of Asset Servicing Product, Boston
The commitment, creativity, and expertise
of our investment servicing teams — in the
midst of a 90% remote work environment —
helped us add new business and deliver
expanded capabilities with existing clients,
underpinning our success during the year
in delivering a wide range of outsourced
solutions to clients around the world.
In Asia Pacific, we grew our relationship with
the subsidiary of a large insurance company
located in China when we were named
custodian and fund administrator for the
subsidiary’s two new private equity funds.
This business is in addition to the custody and
fund administration services we currently
provide for this client’s global infrastructure
funds. In EMEA, a German asset manager
demonstrated its confidence in our ongoing
partnership by renewing our agreement to
provide collateral services.
We were also reappointed by one of the largest
pension providers in the U.K. to continue
providing a variety of back-office servicing
solutions. Throughout the year, we extended
multiple servicing agreements with major
asset managers with products encompassing
every asset class. We also kept abreast of
new developments in the industry, helping
clients identify growth opportunities.
STATE STREET | 2020 ANNUAL REPORT 33
V O I C E O F T H E C L I E N T
P I N G A N O V E R S E A S H O L D I N G S
Nicholas Ng, Managing Director
“With State Street taking care of the day-to-day administrative operations of our funds,
we are able to concentrate on our core competencies of offering compelling investment
opportunities to our investing partners.”
For example, we were the first ETF service
provider to support the launch of semi-
transparent active ETFs, servicing 14 of the
19 funds launched in the industry in 2020.
We continue to leverage our long-standing
leadership in ETF servicing to help educate
clients on the potential of these funds.
P A R T N E R I N G F O R T H E F U T U R E
Shockwaves from the global health, financial,
and racial inequity crises of 2020 will be felt
for years to come. Although the events of the
year forced the entire industry to reassess
the strength of its operating models, they
also offered valuable lessons about resiliency,
leadership, collaboration, and sustainability.
$38.8T*
Assets under custody
and/or administration
$787B*
Business wins
100+
Markets globally covered by
our servicing capabilities
*As of December 31, 2020
STATE STREET | 2020 ANNUAL REPORT 34
H A F I D A A M A R A
Head of Sales, Middle East
and North Africa, Abu Dhabi
M O S T A P H A T A H I R I
Head of Asia Pacific,
Singapore
M A R C I A R O T H S C H I L D
Head of Latin America,
New York
“Since joining State Street,
“State Street has supported clients
“We see tremendous opportunities in
I have had many career growth
through different stages of growth.
the region to support our clients as
opportunities, from leading the
We want to bring this expertise
they look to Latin America as part
State Street Global Advisors
to our Asian clients to help them
of their geographic growth plans.
sales team in the Middle East
accelerate their growth plans.”
With our new Brazil office, we can
and Africa to closing my largest
deal ever, remotely! I have
benefited from sponsorship along
the way, and am pleased to be
giving back by mentoring others.”
now offer market-leading foreign
exchange products and an award-
winning* research platform, along
with global scale and local talent.”
* Winner, Euromoney Magazine
FX Survey, July 2020:
No. 1 in Research for Real Money
No. 2 in Research overall
(for the second consecutive year)
FORWARD TOGETHER EMPLOYEE VOICESSTATE STREET | 2020 ANNUAL REPORT 35
V O I C E O F T H E C L I E N T
U N I O N S E R V I C E -
G E S E L L S C H A F T M B H
Oliver Reinki, Managing Director (Geschäftsführer)
“State Street has been a highly reliable and trusted service partner. We are confident that
extending this partnership will enhance our ability to service our clients, as we continue to
benefit from State Street’s products and services and dedication to service excellence.”
While some market participants may have
anticipated a pause in the industry’s attention
on environmental, social, and governance
(ESG) considerations, there was an increased
emphasis on the topic during the year, as
investment risk and regulatory reporting
requirements continued to gain momentum.
Our focus on ESG remains deeply embedded
across all aspects of our organization, and we
are well positioned to provide best-practice
guidance and support to investors adopting ESG
investing into their long-term growth strategies.
Through our continuity plans, technology
infrastructure, and incredible teams, we were
prepared to not only help clients execute
daily financial transactions through periods
of great global disruption, but also to serve
as their essential partner in ways we never
anticipated. As we have with prior financial
crises and economic downturns, we will
apply these lessons to further accelerate
the positive momentum we gained during
the year, so that we can move forward
together, building a more resilient future.
STATE STREET | 2020 ANNUAL REPORT 36
“ W E A R E L I V I N G U P T O T H E P R O M I S E O F O U R I N T E R O P E R A B L E P L A T F O R M .
P A R T N E R S W A N T T O W O R K W I T H U S B E C A U S E O F O U R O P E N A R C H I T E C T U R E . ”
J O H N P L A N S K Y
Head of State Street Alpha,SM Boston
STATE STREET | 2020 ANNUAL REPORT 37
S T A T E S T R E E T A L P H A SM
S E T T I N G A N E W
I N D U S T R Y S T A N D A R D
As they reassess their current and
future requirements, our clients are
looking to us to help them achieve
faster time to market, greater data
accuracy, and improvements in
resiliency, efficiencies, and scale —
so they can stay focused on finding
new growth opportunities and
delivering on their core competitive
differentiators.
For years institutional investors
have grappled with volatile markets,
shrinking margins, the challenge
of regulatory tightening, and the
breakneck pace of technology
transformation. Wreaking further
disruption, the pandemic prompted
our clients around the world to
take stock of what the upheaval in
markets, operations, and technology
means for their future. The crisis
has reinforced the pressure on
asset managers and asset owners to
re-engineer their operating models
and redefine their relationships with
service providers like State Street.
STATE STREET | 2020 ANNUAL REPORT 38
1ST
Front-to-back asset servicing
platform from a single provider
for institutional and wealth
management firms
O U R I N D U S T R Y - L E A D I N G
F R O N T - T O - B A C K P L A T F O R M
Our solution is State Street Alpha, the first
front-to-back asset servicing platform from
a single provider for institutional and wealth
management firms. Alpha brings together
our clients’ choice of real-time data and
asset intelligence across the investment life
cycle to help them make better decisions
and deliver growth for their clients.
Alpha manages the full spectrum of investment
servicing operations, providing a range of
users — whether portfolio managers, traders,
or operational oversight teams — with the
ability to connect and normalize data from
multiple sources, and to deliver timely
insights while simplifying the user experience
for both assembling and consuming this
information from a single application.
By automating workflows and streamlining
operations, the platform drives greater
efficiency, increases transparency, and reduces
manual touchpoints, thereby lowering risk and
shrinking the potential for data discrepancies.
The Alpha platform positions clients to increase
productivity while reducing operational and
technology expenses; achieve productivity
and scale efficiencies while reducing costs for
business continuity and operational risk exposure;
and shift funding for capital expenditure
investments to their core business functions.
The global scale of the Alpha platform
empowers clients to enter and grow in
new regions and markets, and launch new
products. Its end-to-end analytics delivered
via proprietary offerings, partnerships,
and client co-developed solutions support
portfolio expansion and diversification.
STATE STREET | 2020 ANNUAL REPORT 39
V O I C E O F T H E C L I E N T
V O N T O B E L
Felix Lenhard, COO, Member of the Global Executive Board
“The high-quality, scalable operating model we gain with Alpha will help us provide
best-in-class services to our portfolio managers and supporting functions.
Because the platform lets us expand connectivity with custodians and brokers,
we can improve our client servicing.”
And its fully automated real-time cash
management provides a centralized view
of actionable cash across the enterprise.
The platform’s open-architecture design makes
it compatible with third-party solutions, allowing
clients to keep current vendors or construct
a multi-provider configuration that works
best for them. In this complex and frequently
changing business, we want to provide more
flexibility and simplicity for our clients, not less.
While learning to service our clients from
remote working environments in 2020, we
continued to reinvest in the platform to expand
core capabilities, add new functionality,
leverage emerging technologies, and integrate
with leading data and technology providers.
As a result, our Alpha platform gained
further momentum and broader market
adoption, strengthening our position as
an enterprise outsourcing solution and
front-to-back platform provider.
T H E C H A R L E S R I V E R A D V A N T A G E
Our single-platform approach seamlessly
connects State Street’s core functions of
back-office custody, fund administration,
and transfer agency services; middle-office
outsourcing services including trade execution,
performance analytics, and data services;
and the Charles River Development front-
office investment management platform we
acquired in 2018. Together with State Street’s
middle- and back-office capabilities, Charles
River Investment Management Solution
forms the foundation of State Street Alpha.
STATE STREET | 2020 ANNUAL REPORT 40
V O I C E O F T H E C L I E N T
J A N U S H E N D E R S O N
Ewen Melling, Head of Technology Delivery
“We’re excited by the steps that Charles River is taking to deploy software
and technologies to clients more quickly, and how that will help us move
forward faster.”
In 2020, we won new business and maintained
a strong sales pipeline at Charles River. Stand-
alone revenue rose 14%, helped by gains in its
Software as a Service (SaaS) and professional
service revenues. We also integrated Charles
River and other State Street technologies to
bring a more seamless experience to clients,
including integrating our Global Markets
offerings and developing end-to-end cash
management solutions.
During the year, we continued our commitment
to extending Charles River’s wealth management
offerings with Wealth Hub, a cloud-based,
secure communications platform that connects
asset managers with wealth managers — such
as banks, broker dealers, and wire houses —
that manage client relationships. The platform
provides more reliable, secure, and auditable
transmission of data than email, and
eliminates error-prone manual workflows.
Migrating Alpha clients to the cloud enables
us to more quickly deploy client environments
and launch new products and services,
while gaining increased data and computing
capacity. Clients began a successful shift
to our Microsoft® Azure-based strategic
cloud platform in 2020.
A L P H A I N N O V A T I O N A N D
P E R F O R M A N C E
Alpha was up and running at several client
sites in 2020, including our first front-to-back
client in Southeast Asia. A clear articulation
of our strategy, along with an ability to show a
live proof of concept, helped us advance sales
discussions and sign six new Alpha clients in
2020, including three in the fourth quarter.
STATE STREET | 2020 ANNUAL REPORT 41
14%
6
Rise in stand-alone
Charles River Development revenue
New Alpha clients signed
During the year, we added functionality to help
resolve data management issues that our clients
commonly confront, arising from disconnected
data repositories, disparate data types and
sources, and fractured delivery processes.
In December, we launched the Alpha Data
Platform, an end-to-end data management and
warehouse solution for institutional investment
and wealth managers that enables clients to
seamlessly assemble and access investment
data spanning internal and third-party services
across their investment processes. It provides
access to front-office data in near real time,
and incorporates data catalog and visualization
capabilities that result in higher quality data, while
reducing cost and accelerating decision-making.
By partnering with industry innovators such
as Snowflake® and Microsoft,® our platform
provides investment managers with access
to trusted data from across Alpha, as well as
a broad spectrum of data in Snowflake’s Data
Marketplace. We also fortified the Alpha platform
by adding new software and functionality to
streamline and simplify clients’ investment
processes and solve complex data challenges.
Reflecting Alpha’s open architecture value
proposition, we formed new partnerships with
leading analytics providers (Axioma, MSCI,
and Solovis), trading platforms (MarketAxess,
Tradeweb, and Broadridge LTx), and data and
data-warehousing providers (Snowflake and ICE).
STATE STREET | 2020 ANNUAL REPORT 42
160+
Partners added across our Alpha ecosystem
since the acquisition of Charles River
228 YEARS
Delivering value to our clients
Since our 2018 acquisition of Charles River,
we have added more than 160 partners across
our Alpha ecosystem, supporting our trading,
analytics, and data tools and platforms.
Our goal is to find the fastest and most efficient
way to add new functionality, whether we
acquire it, invest in it, or design it in-house.
P R O V I D I N G A P L A T F O R M
F O R G R O W T H
We have been delivering value to clients for
228 years, focusing on the future to help
solve tomorrow’s challenges today. Alpha
and Charles River are critical enablers of our
strategy and core revenue growth plan.
Adopting the Alpha platform positions clients
to deliver differentiated capabilities and
increase productivity while reducing expenses.
For existing clients that are transforming their
operating model either through front-to-back
consolidation or through consolidation of
State Street as their sole provider, these
expanded relationships are expected to
drive increased revenue opportunities.
We continue to enhance the Alpha platform’s
functionality and integration, transforming
the way we engage with our clients while
providing them with the insights, services,
and technology they need to grow and adapt.
Alpha and Charles River are positioned to
shape the evolution of our industry and
business model, and drive core growth
across State Street.
STATE STREET | 2020 ANNUAL REPORT 43
S P I R O S G I A N N A R O S
M A D E L I N E D U F F Y
T R E V O R R O Z I E R - B Y R D
President and CEO,
Global Head of Alpha Middle-
Head of Retail Separately Managed
Charles River Development,
Office Services, London
Account Servicing, Boston
Boston
“Support for our clients went far
“The Alpha Services transformation
beyond proving our strength and
effort launched this year focuses
resilience in business continuity;
on reducing unit-cost-of-service
we focused on helping them
through process improvements
grow. As more clients consider
and technology enhancements.
outsourcing non-core tasks, they
Our client service commitments
are recognizing the benefits of
remain paramount, and 2021
Alpha’s open architecture and
will see us fully mobilize around
data management platform.”
our revenue-enhancing and
cost-savings initiatives.”
FORWARD TOGETHER EMPLOYEE VOICES“Data is the lifeblood of any organization; a huge focus of our Alpha solution is on improving the entire data ecosystem.”STATE STREET | 2020 ANNUAL REPORT 44
“ C L I E N T S C A M E T O U S A T A T I M E W H E N T H E Y R E A L L Y N E E D E D
A P A R T N E R . T H I S W A S S T A T E S T R E E T A T I T S B E S T . ”
N A D I N E C H A K A R
Head of Global Markets, Boston
STATE STREET | 2020 ANNUAL REPORT 45
G L O B A L M A R K E T S
F U T U R E - F O C U S E D
P E R F O R M A N C E
A N D I N N O V A T I O N
Our Global Markets business provides
institutional clients with innovative
liquidity access options and diverse
financing solutions, backed by expert
insights. The team’s comprehensive
liquidity offering supports clients’
foreign exchange, electronic trading,
portfolio restructuring, and currency
hedging requirements across
multiple open-source architecture
platforms. Solutions delivered on
our global suite of award-winning1
electronic trading platforms are
designed to increase transparency,
improve trading efficiency, and
deliver quantifiable execution, while
our proprietary flow indicators,
macro strategy expertise,
1 Source: Euromoney FX Survey 2020, P&L
Readers’ Choice Awards 2020, and Risk Markets
Technology Awards 2020
and quantitative investment analytics
help keep clients abreast of
market shifts — and the potential
impact to their business.
As we entered 2020, our focus on
innovation positioned us well to
support clients as they sought to
simplify their operating models,
manage liquidity, and streamline
their investment processes.
The pandemic tested our resolve and
readiness. Our Global Markets group
rose to the challenge and tapped
into State Street’s balance sheet,
operational strength and resilience,
IT infrastructure, and unique insights
to help clients during a period of
great stress and uncertainty.
STATE STREET | 2020 ANNUAL REPORT 46
D E L I V E R I N G I N A N Y E N V I R O N M E N T
Our GlobalLink electronic trading platforms
weathered record-high volumes in the worst
of market volatility. FX Connect®, our multi-
currency, multi-bank foreign exchange (FX)
trading platform, also handled record volumes,
with emerging market currency trading volumes
rising 30% year over year. Our robust
controls and processes, backed by a strong
technology infrastructure, ensured continuous
trading. As a leading liquidity provider to real
money managers and a top-10 FX provider
worldwide*, our ability to seamlessly transact
large volumes prompted several clients
to elevate us to their primary FX provider
during the past year. Our preparation over
the past several years, including a focus on
electronification and portability of trading
across desks around the globe, enabled
consistent delivery of customer support despite
the most challenging operating conditions.
In its annual FX survey, Euromoney Magazine
recognized State Street’s foreign exchange
offerings, naming it No. 1 in Real Money Market
Share for the third consecutive year, No. 1
in Customer Satisfaction Globally, and No. 1
in Research for Real Money, and ranking
FX Connect second-largest multi-dealer
platform and first for Real Money clients.
FX Connect was also rated best platform
for the eighth consecutive year by P&L
Readers’ Choice Awards, and best FX trading
platform in the FN Trading & Tech Awards.
* Ranked 9th-largest FX provider globally by
Euromoney Magazine in its FX Survey, July 2020
When our clients had specific liquidity
challenges — whether in FX trading or
securities lending — we came up with ways
to bridge shortfalls so clients did not incur
unnecessary losses. Doing what was right
for the client remained our highest priority
in 2020; we were there for our clients
when it mattered, while at the same time
adhering to our culture of risk excellence.
The pandemic-induced uncertainty and
volatility within financial markets not seen since
the 2008 global financial crisis caused many of
our clients to reassess their business models
and outsource aspects of their trading function.
Using our comprehensive outsourced trading
solution, clients were able to gain efficiencies
and scale in their trading process, reduce risk,
and refocus resources on growth opportunities
— all while maintaining oversight of their
trade execution. We anticipate this trend to
continue, as more institutions seek the benefits
offered by an outsourced trading model.
M E A S U R I N G T H E I M P A C T
When money market liquidity levels were
threatened in March, regulators looked to
our expertise as a Global Systemically
Important Financial Institution. The Federal
Reserve Bank of Boston called on us to
help prevent a run on prime money market
funds, as skittish investors fled into safe-
haven, government-invested vehicles.
STATE STREET | 2020 ANNUAL REPORT 47
M A R T I N E B O N D
C A T H E R I N E M O O R E
Head of GlobalLink, London
Vice President, Foreign Exchange
E M I L Y B U S B Y
Business Analyst,
Trading, Boston
Workplace of the Future, Boston
“Being able to give our clients
“Moments of high market
“For me, the transition to a fully
access to information so they
uncertainty and volatility are
remote work environment has
can make better investment
when our team truly outperforms.
been seamless and productive.
decisions and make it easier
Our history of reliability and
Support from senior management
for them to trade — that is the
consistent market-making
has been unwavering, and my team
Global Markets mission.”
capabilities through crises gives
and I quickly adapted, efficiently
our clients the confidence to
executed, and successfully
act and execute decisively.”
attained our goals by embracing
technology and discovering
new ways to collaborate.”
FORWARD TOGETHER EMPLOYEE VOICESSTATE STREET | 2020 ANNUAL REPORT 48
Hours after recognizing the problem,
State Street worked with the Federal
Reserve to operationalize the Money Market
Mutual Fund Liquidity Facility loan program
and was the first financial institution to
participate, helping guarantee a flow of capital
into threatened money market funds.
Our data-driven research provided regulators
with insights into inflation trends, risk
indicators, money flows, and investor sentiment.
State Street executives remained in frequent
contact with regulators around the globe,
sharing insights on what we observed in the
market at critical junctures.
Our proprietary Price Stats series, which
monitors trends in retail prices and
consumer demand in 22 countries, was
provided to central banks to help them
formulate their policy responses to the
economic fallout of the pandemic.
A D V A N C I N G P R O D U C T I N N O V A T I O N
Though it was a challenging year in many ways,
our culture of innovation thrived. Our focus
on improvement was evident in several new
products and services introduced in 2020. We
launched Collateral+, a tool that helps asset
managers and owners calculate, navigate, and
optimize ongoing margin requirements for
uncleared over-the-counter derivatives, including
FX options, swaptions, and hedging trades.
Collateral+ helps maintain on-time compliance
with the new requirements on uncleared margin
rules, while simplifying and incorporating the
new workflows needed to address them.
Later in the year, we marked the 20th anniversary
of our Fund Connect money market trading,
analytics, and cash management tool, with an
upgrade to its user interface experience, and
expanded reporting capabilities with real-time
systematic updates. Fund Connect remains an
industry-leading, integrated platform providing
access to more than 400 money market funds
from leading providers.
Our award-winning* BestX transaction cost
analysis (TCA) platform completed its multi-
asset class build-out and now offers traders
the ability to assess and compare the
quality of their FX, fixed-income, and equities
transactions, regardless of execution provider
or venue, with unparalleled data visualization
and data integrity. We expanded the volume of
our TCA business to $24 trillion during 2020.
With a focus on delivering industry insights
and best practice, the BestX platform
was named Best Execution Product of
the Year in the Risk Markets Technology
Awards for the fourth consecutive year.
* Named Best Execution Product of the Year in the
Risk Markets Technology 2021 Awards
STATE STREET | 2020 ANNUAL REPORT 49
Demonstrating our leadership in securities
finance, we expanded the focus on our enhanced
custody solution, offering clients market insights
on forward-looking topics such as aligning
responsible investing with securities finance and
the impact of short selling on environmental,
social, and governance (ESG) considerations.
These improvements led to State Street
being named Most Innovative Lender of the
Year in the Global Investor/ISF Survey.
B U I L D I N G T H E F U T U R E
State Street’s depth of expertise and capacity
to innovate has created a product pipeline
designed to solve real client problems.
Technology is at the heart of our progress,
so we are working closely with our information
technology group to craft new solutions and
eliminate legacy systems that no longer meet
our objectives. Infrastructure investment
remains a priority, and we will continue to
refine our systems to increase efficiency.
As digital assets gain momentum, we anticipate
greater demand on banks and financial service
partners to deliver integrated servicing
solutions for these assets — from custody and
accounting to trading and risk management.
Through our own product development and
partnerships, we are investing in tokenization
and examining the potential to tokenize various
fund structures and collateral to enable clients
to add cryptocurrencies to their portfolios.
Building on that momentum, we will be servicing
an emergent class of digital ETFs, creating digital
cash solutions and evaluating the trading of
crypto-currencies, while enhancing our
conventional trading platforms to enable digital
asset trading platforms. During the year, we
advanced our digital asset pilot with crypto-
currency exchange and custodian Gemini Trust
Company, announced in late 2019. A first-of-its-
kind partnership, the pilot builds on research
and development to combine Gemini Custody™
with State Street’s back-office reporting. We also
invested in the leading crypto asset software
and data provider, Lukka, which provides middle-
and back-office software and data solutions
to simplify the crypto accounting process. We
will continue to leverage our expertise and
partner with leading financial technology firms
to develop industry-shaping solutions to enable
our clients’ rapidly evolving use of digital assets.
L O O K I N G A H E A D
In a year that brought incalculable challenge and
change, we embraced our values and partnered
intensely with clients to solve their most
complex issues through innovation, creativity,
and perseverance. Our efforts were rewarded
with strong financial performance, expanded
relationships, and new client wins. As we move
forward together, we will continue to leverage the
very best of State Street Global Markets to help
our clients remain resilient and flourish amidst a
rapidly evolving financial services environment.
STATE STREET | 2020 ANNUAL REPORT 50
“ W E W E R E A B L E T O M A N A G E $ 3 . 5 T R I L L I O N O F C L I E N T A S S E T S A N D H E L P O U R C L I E N T S
N A V I G A T E T H R O U G H V O L A T I L E M A R K E T S W I T H H U G E T R A D I N G V O L U M E S P I K E S —
A L L W H I L E A L M O S T N O N E O F O U R P E O P L E W E R E I N A N O F F I C E B U I L D I N G . ”
C Y R U S T A R A P O R E V A L A
President and CEO, State Street Global Advisors, Boston
STATE STREET | 2020 ANNUAL REPORT 51
S T A T E S T R E E T G L O B A L A D V I S O R S
P O R T F O L I O
R E S I L I E N C E I N
G O O D T I M E S
A N D B A D
State Street Global Advisors is the
world’s third-largest asset manager
and provider of exchange traded funds
(ETFs), with total assets under
management of $3.5 trillion as of
December 31, 2020. Serving some
of the world’s largest and most
sophisticated pension plan sponsors,
endowments and foundations, sovereign
wealth funds, central banks, and
financial intermediaries, we provide
portfolio management solutions
across the risk and return spectrum,
covering all major asset classes,
investment styles, and vehicles.
During the exceptional months of 2020,
we deployed the full breadth of our
market insights and risk and exposure
management skills to help clients
weather historic market shifts.
Most investors entered 2020 with the
expectation that the longest equity
bull market in history would most
likely experience a correction during
the year. But no one anticipated
the severity and speed with which
COVID-19 shut down economies
around the world and caused the
most precipitous drop in the S&P
500 since Black Monday in 1987.
The ascent back to record highs
by the end of the year was nearly
as dramatic. Over the course of
a year like no other, institutional
investors faced a range of portfolio
and operational challenges that
we were able to address with
trusted advice, market insights,
and implementation prowess.
STATE STREET | 2020 ANNUAL REPORT 52
“ W E T A L K A B O U T R E S I L I E N C E F R O M A T E C H N O L O G Y
S T A N D P O I N T , B U T W H A T A B O U T T H E R E S I L I E N C E O F
O U R T E A M S A N D O U R L E A D E R S H I P ? T H A T ’ S B E E N
T H E R E A L S T O R Y . ”
L O R I H E I N E L
Global Chief Investment Officer,
State Street Global Advisors, Boston
T H E N E E D F O R S P E E D
Unlike in 2008, when the crisis started in
the financial markets and spread to the real
economy, this time a global public health
crisis forced an abrupt cessation of economic
activity, which led to historic market volatility
and an unprecedented shift to remote working
conditions. Fortunately policymakers acted
on the global financial crisis lesson of the need
for speed in supporting markets and rapidly
instituted a series of key liquidity and credit
financing programs. As one of the world’s largest
investors, we were able to provide regulators
and central banks with real-time insights on
market conditions and practitioner advice
on how best to support markets. Speed and
liquidity were also of the essence for our
institutional clients. We helped many switch into
more secure assets, opportunistically allocate
to new opportunities created by the market
volatility, raise capital to meet other liquidity
needs, or rebalance back to their strategic asset
allocation during a very volatile first-quarter
end, a move that paid off as equity markets
began to recover. State Street’s strengths as
an execution machine were vital during the
markets’ most volatile weeks, during which
we processed trading volumes that were
50% higher than normal.
E T F S C R O W N E D A S P R E F E R R E D
L I Q U I D I T Y V E H I C L E
While skeptics long predicted the worst for
ETFs during a serious market sell-off, ETFs
performed exceptionally well, providing
liquidity to investors on both the up moves
and the down moves of the markets. The Bank
for International Settlements noted positively
how bond ETFs were able to incorporate
pricing information more quickly than the
underlying physical bonds during the worst
of the market volatility. ETF trading showed
extraordinary volumes in the first quarter.
STATE STREET | 2020 ANNUAL REPORT 53
11
Of the top 20 most liquid ETFs
in the U.S. are represented
by our SPDR ETFs
With 11 of the top 20 most liquid ETFs in the
United States, our SPDR ETFs represented
approximately 40% of all U.S. ETF trading
from late February through early March.
SPY alone — the first ETF created in the U.S.
— saw 15 consecutive days of secondary
market trading of more than $50 billion,
including a record high day of $113 billion.
Particularly for fixed-income investors,
the secondary market trading of ETFs provided
the liquidity and price discovery they needed
as the underlying physical bond market traded
less frequently. This was especially important
for investors who wanted to rotate in and out
of fixed-income sectors as valuations shifted.
We also saw clients change the duration of their
fixed-income holdings, using ETFs to achieve
their target durations. Similarly, as investors
reconsidered the relative advantages of haven
assets such as Treasuries, cash, or gold in an
ultra-low interest rate environment with rising
government debt levels, we saw strong flows
into our gold ETFs.
R E S I L I E N T I N V E S T M E N T S O L U T I O N S
I N A W O R L D T U R N E D U P S I D E D O W N
In addition to the unprecedented challenges that
our clients experienced moving their teams to
remote working conditions, markets behaved in
ways that required them to rethink conventional
approaches to investment objectives around
income, growth, and protection. Communicating
with clients on these portfolio challenges and
providing daily market updates were a priority
for us in 2020.
For example, with interest rates at historic
lows and government debt at historic highs,
fixed-income investors are challenged to find
the yield and portfolio ballast they have come
to rely on from government bonds. Interest in
gold skyrocketed in 2020, not only as a tactical
hedge against inflation risk, but as a defensive
mainstay in strategic asset allocation.
STATE STREET | 2020 ANNUAL REPORT 54
“We are united as a company in our commitment to address racial
and social injustice. This commitment is reflected by State Street
Global Advisors’ long-term asset stewardship efforts and focus
on advancing inclusion and diversity across our industry.”
K E M D A N N E R
Global Head of Human Resources,
State Street Global Advisors, Boston
Investors are also rethinking what it means
to be truly diversified and prepared for non-
linear risks, including retaining more working
capital, less as an asset allocation decision
and more as a true liquidity buffer to avoid the
pain of becoming a forced seller at the worst
possible time.
In general, there has been a greater focus on
portfolio resilience. This includes the resilience
of retirement solutions, as we continue to help
defined benefit (DB) plans de-risk their portfolios,
and incorporate DB best practices into defined
contribution (DC) plans, especially when it
comes to mitigating longevity risk with lifetime
income solutions. We also continue our policy
outreach to strengthen retirement savings
plans around the world and were pleased to
see the U.S. SECURE Act we supported become
law in 2020, granting more American workers
access to employer-sponsored savings plans.
S T R E N G T H E N I N G
R E S I L I E N C E W I T H E S G
Lastly, for many investors, the pandemic
reinforced fundamental connections between
resilience and the environmental, social, and
governance (ESG) issues we have focused on
for many years. While we have offered ESG
investment screens since the 1980s, more
recently we have prioritized ESG research
and incorporated ESG into our investment
risk frameworks in addition to our asset
stewardship engagement on material ESG
issues with our portfolio companies.
In the past year, we launched multiple ESG
strategies, including five SPDR ESG funds
globally, three of which were fixed-income funds
as we expand our offerings beyond equities.
Moreover, we continue to work with our largest
and most sophisticated clients on how to integrate
ESG into their entire investment program.
STATE STREET | 2020 ANNUAL REPORT 55
862
Companies with previously all-male boards
have added at least one female director
As long-term stewards of our clients’ assets,
we are deeply invested in understanding the
ESG issues that are material to a company’s
ability to generate sustainable performance.
We have called on our portfolio companies to
report on their climate risks according to the
framework from the Task Force on Climate-
related Financial Disclosures (TCFD) and how
a transition to a net-zero emissions world
impacts their businesses.
Four years after our Fearless Girl campaign
ignited a global conversation on gender
diversity, 862 companies with previously all-
male boards have added at least one female
director. Beginning in 2021, we are extending
our focus to racial and ethnic diversity, while
continuing to engage on climate change risks.
As we look to 2021, we continue to monitor
markets closely for our clients, looking to
separate the signal from the noise and to
approach the uncertainties of a post-COVID
world with humility and open minds.
We know we need to pressure test our risk
models more robustly than ever before and
acknowledge that multi-standard deviation
events could well happen more frequently
than history suggests. Most importantly, we
know we need to focus not just on the capital
efficiencies of portfolios, but on the capital
resiliencies that encompass a far broader set
of traditional financial and newer ESG value
drivers that will most likely play a bigger
role in long-term investment performance.
STATE STREET | 2020 ANNUAL REPORT 56
“ I T C A M E D O W N T O O U R P E O P L E . T H E Y F I G U R E D O U T H O W T O M O V E W O R K A R O U N D
T H E P L A N E T W H E N C H I N A , T H E N I N D I A , C A M E U N D E R T H E V I R U S ’ S S I E G E .
I W I S H W E D I D N ’ T H A V E T O G O T H R O U G H I T , B U T I T W A S D E F I N I T E L Y A P R O U D
M O M E N T F O R S T A T E S T R E E T . ”
L O U M A I U R I
Chief Operating Officer, Boston
STATE STREET | 2020 ANNUAL REPORT 57
O P E R A T I O N A L A N D T E C H N O L O G Y L E A D E R S H I P
S O W I N G T H E
S E E D S O F G R O W T H
We have been strategically transform-
ing our operating model for years,
reflecting our ambition to sustain
an industry leadership position in
technology, operations, and execution.
Despite the unexpected public health,
social, and economic upheaval
of the pandemic, we continued
to implement our transformation
agenda in 2020: pivoting from an
asset servicer to an enterprise
outsourcing partner; expanding
State Street Alpha capabilities
and revenue opportunities;
enhancing our institutional services
strategy and client service model;
and continuing to improve our
operating model through increased
productivity and automation, all
while demonstrating steadfast
resilience and ingenuity during
extraordinarily challenging markets.
In 2020, we redefined what it
means to deliver globally for our
clients, and we continued sowing
the seeds for future business
growth and shareholder return.
STATE STREET | 2020 ANNUAL REPORT 58
“ W E D I D N ’ T P U T T H E Y E A R O N H O L D . W E C O N T I N U E D T O
I M P L E M E N T N E W P R O D U C T S , R E D E S I G N E D S Y S T E M S ,
A N D L E A R N E D T H E V A L U E O F F O C U S . ”
A N D R E W E R I C K S O N
Chief Productivity Officer and
Head of International Business, Hong Kong
C O N F R O N T I N G T H E C O V I D - 1 9
P A N D E M I C H E A D - O N
Just weeks into 2020, a fast-spreading virus
locked down Wuhan, China, and a devastating
pandemic would soon be born. We closely
monitored developments while finalizing
a business continuity plan for our 4,000
employees in Hangzhou, a city of 10 million
people east of the outbreak’s epicenter.
When that city closed in early February,
our employees began working from home.
The Hangzhou team’s expert response
to this massive shift served as a vital
playbook for State Street as the pandemic
spread, impacting our offices around the
world. Supported by our strong flex work
infrastructure, by mid-March nearly 90%
of our approximately 39,000 employees
had shifted to a work-from-home model.
This new reality accelerated our adoption
of existing communication tools and new
collaboration technologies that helped
to connect and engage employees, while
adjusting to new challenges that for many
employees included setting up home
offices and home schools.
Later in March, as lockdowns in China were
lifted, our Hangzhou leadership team began
developing the framework and logistics for
safely returning employees to the office in
China. Our experience managing our China
operations during this period provided the
blueprint for an exemplary return-to-office
program that we’ve adapted and leveraged
around the world as we welcome employees
back to our offices. We shared our return-to-
office framework and the deep insights we
gained from our own operational playbook
with clients to accelerate their transition to a
new post-pandemic working environment.
STATE STREET | 2020 ANNUAL REPORT 59
“Throughout this entire experience, what has been great is the sense
of purpose with which we’ve all operated. From this challenge, I’ve seen
the amazing strength of State Street and its people. It is because of that
we have been successful and will continue to be successful.”
M A T T L E O N A R D
Head of State Street Hangzhou
D E F I N I N G T H E W O R K P L A C E
D R I V I N G P R O D U C T I V I T Y A N D
O F T H E F U T U R E
O P E R A T I N G E F F I C I E N C I E S
The post-pandemic workplace will look different
than the one we left behind in 2020, and we are
prepared for it. During the year, we created a
“workplace of the future” leadership team to
help identify the culture, processes, technology,
and tools focused on enabling us to implement
and sustain new ways of working flexibly while
increasing productivity, creativity, and employee
engagement. Throughout the year, this team
continued refining our vision for the workplace
of the future.
Early efforts involved a data-driven examination
of the working styles of our employees that will
influence how and where they will work, the
technology they need to be more productive,
and ways to deliver better results for clients
and our company. We also launched a formal
process for facilitating internal mobility and
helping employees attain new skills in order
to align our talent to most effectively develop
our employees and support the company.
We accelerated our plans for simplifying
and standardizing our technology stack and
increasing our investment in automation —
all to drive greater productivity and efficiency.
Despite the challenges caused by the pandemic,
we continued to execute our 2020 strategy,
maintaining our focus on performance and
optimizing our delivery and service models.
We boosted employee engagement through
proactive, frequent, consistent, and transparent
conversations with our teams. We also
established and began implementation of
a global data center consolidation plan.
Leveraging the expertise of our technology
group, we applied machine learning
capabilities to further automate our mutual
fund net asset value calculation process.
STATE STREET | 2020 ANNUAL REPORT 60
“ T E C H N O L O G Y I S A T T H E F O R E F R O N T O F O U R
S T R A T E G Y . W E A R E M O V I N G T O W A R D B U I L D I N G
A T E C H N O L O G Y E N G I N E E R I N G C U L T U R E . ”
B R I A N F R A N Z
Chief Information Officer, Boston
After reducing manual touches by 1 million
in 2019, we repeated that success in 2020,
for a total reduction of 2 million touches by
the end of the year. As a result, we’ve been
able to dramatically reduce risk and deliver
faster, more accurate end-of-day pricing
for our clients. In addition to sustaining our
operational and technological momentum,
we also transformed our daily routines,
moving from offices to bedrooms and kitchen
tables, and from meeting clients in person
to collaborating over video screens. We
worked more effectively, communicated more
proactively, extended greater empathy, and
challenged ourselves to innovate with every
opportunity — all in the name of delivering
results for our clients, simplifying our
operations, and investing to grow our business.
In a year when resiliency was foremost in our
clients’ minds, we also partnered with clients to
support and troubleshoot their own technology
and employee transitions to working from
home, further strengthening our relationships.
M O V I N G F O R W A R D T O G E T H E R
Transformation became the cornerstone of our
growth strategy in 2020, as we prepared our
228-year-old company for its next iteration as
an essential enterprise partner and data and
analytics platform provider for institutional
investors. With all of its change and challenges,
the year gave us some valuable lessons in
how to become a better organization.
It forced us to take initiative, support each other,
lead with empathy, and better understand what
it means to be an essential partner. Not only
did outcomes from 2020 improve our operating
model, increase our scale, and drive down our
unit costs, they also instilled a greater sense of
purpose and pride that we are moving forward
together to shape the future of the industry
and become the leading enterprise partner
and platform for institutional investors.
STATE STREET | 2020 ANNUAL REPORT 61
L I Z N O L A N
P A B L O B U R B R I D G E
S A N A A F S H A N S H A K E E L
Head of Global Delivery,
Deputy Chief Transformation Officer,
Corporate Communications
London
Boston
Associate, Bangalore
“We managed to keep pace with
“I’m inspired every day by the
“A challenging year allowed me to
our strategic initiatives while
immense passion and drive our
take on new projects to support
shifting nearly all employees to
employees bring to their work.
teams in our Poland, India, and
working from home and absorbing
In 2020, we overcame many
China hubs. From launching a
huge increases in trading
challenges to establish effective
weekly newsletter that reduced
volumes and market volatility.”
governance with a focus on
email traffic to driving process
execution and accountability,
improvements from internal
create a strong pipeline of
survey feedback, I supported
initiatives, and continue to
the most critical aspect of our
execute against our plans.”
business – our employees.”
FORWARD TOGETHER EMPLOYEE VOICESSTATE STREET | 2020 ANNUAL REPORT 62
“ W E S A W F I R S T H A N D H O W I M P O R T A N T E M P A T H Y
I S T O D R I V I N G E M P L O Y E E E N G A G E M E N T . ”
K A T H Y H O R G A N
Chief Human Resources and Corporate Citizenship Officer, Boston
STATE STREET | 2020 ANNUAL REPORT 63
C U L T U R E A N D C O M M U N I T Y
S T A T E S T R E E T
S T R O N G
S U P P O R T I N G O U R
E M P L O Y E E S
When the COVID-19 pandemic struck,
our management teams acted quickly
to protect the health and safety of
our employees, rapidly transitioning
to a remote work model. Frequent
surveys kept us in tune with how
employees fared throughout the
year and what resources we could
provide — from technology and office
equipment to expanded health and
wellness support — to ensure that
employees had what they needed
to stay connected and engaged.
In an exceptional year, we witnessed
the profound impact of global
health, economic, racial, and social
justice crises — on our company,
our industry, and our communities.
For all of us at State Street, these
events illuminated the importance
of collaboration, commitment,
empathy, and understanding.
Throughout 2020, we deepened our
support of communities hit hardest
by the pandemic’s economic fallout
and those affected by widening
racial and economic disparities.
We continued to push for a more
sustainable world, sharpening
our commitment to reducing our
carbon footprint and addressing
climate change risk. We supported
each other, finding new ways to
work together toward shared
goals and a common purpose.
STATE STREET | 2020 ANNUAL REPORT 64
“ O U R V A L U E S A N D O U R B E H A V I O R C R E A T E
A C U L T U R E T H A T H A S A P R O F O U N D I M P A C T
O N O U R B U S I N E S S A N D T H E C O M M U N I T I E S
W H E R E W E L I V E A N D W O R K . ”
J O A N C H R I S T E L
Head of Corporate Citizenship
and Global Inclusion, Boston
To continue providing employees with
critical training and professional development
opportunities as they worked remotely,
we introduced Degreed, an online educational
platform. Through artificial intelligence and
machine learning capabilities, Degreed
directs employees to educational opportunities
based on their job responsibilities, goals,
and interests — helping build their knowledge
and skill sets.
In September, we launched Bravo, a global
reward and recognition program that empowers
employees to recognize one another for
outstanding contributions. Through Bravo,
stories surfaced of employees’ remarkable
efforts to support clients and colleagues during
the pandemic. In just four months, Bravo
recorded more than 13,000 awards, highlighting
employees whose performance truly stood out.
A D D R E S S I N G R A C I S M , I N E Q U A L I T Y ,
A N D S O C I A L I N J U S T I C E
In the 11 years since we officially launched our
Global Inclusion Center of Excellence, State Street
has championed equal opportunities for
individuals with diverse backgrounds and unique
perspectives. In early December, we launched
a voluntary self-identification effort, “Count Me
In,” which encourages employees to self-identify
their race, ethnicity, sexual orientation, gender
identity, preferred pronouns, and disability
and veteran status, where allowed by local
laws. This voluntary data will help provide a
clearer picture of our progress toward building
a more diverse and inclusive State Street.
For the fifth year, we were proud to have been
chosen for inclusion in the Bloomberg Gender-
Equality Index, a reference index used by
investors examining gender equality issues
at public companies.
STATE STREET | 2020 ANNUAL REPORT 65
13K
Bravo employee reward
program nominations
11YEARS
Since the launch of our Global
Inclusion Center of Excellence
The Bloomberg index of 380 companies
measures gender equality across five pillars:
female leadership and talent pipeline, equal
pay and gender pay parity, inclusive culture,
sexual harassment policies, and pro-women
brand. For the fifth consecutive year, we
earned a score of 100% on the Human Rights
Campaign Foundation’s Corporate Equality
Index as a “Best Place to Work for LGBTQ
Equality,” recognizing our goal of building
a more LGBTQ-inclusive workplace.
As society reckoned with the painful reality
of systemic racism, a core team of employees
came together to formulate our “10 Actions
Against Racism and Inequality,” announced in
July by Chairman and CEO Ron O’Hanley.
These measurable, actionable tenets are part
of our global plan to be a leader in promoting
greater equity in our industry and our communities.
State Street’s 10 Actions augment our existing
diversity and inclusion goals by seeking to triple
Black and Latinx senior leadership and double
our percentage of those populations at all
levels. The 10 Actions address development and
advancement programs, governance models,
community outreach, and philanthropy; look
to strengthen our supplier diversity programs;
and seek to improve diversity on our board of
directors. State Street is committed to effecting
real change through the 10 Actions, and a new
Inclusion, Diversity & Equity Council, chaired
by Ron O’Hanley, oversees progress on these
efforts. Since rolling out the 10 Actions,
we also launched a variety of in-person forums
and expanded the online training courses for
our employees around racism and equity.
STATE STREET | 2020 ANNUAL REPORT 66
“ T H E 1 0 A C T I O N S W I L L B E C O M E T H E
B A S I S O F H O W W E T H I N K A B O U T T H E
O R G A N I Z A T I O N , O U R T A L E N T , A N D
H O W W E C R E A T E A B E T T E R S E N S E O F
B E L O N G I N G . ”
P A U L F R A N C I S C O
Chief Diversity Officer, Boston
The discussion was amplified by our leadership
team, managers, employee networks, and allies
throughout the organization, as they facilitated
candid conversations with more than 9,700
employees about the insidious nature of racism.
Continuing those conversations, we launched
the “Share Her Voice” campaign, a series of
video stories articulating Black women’s
experiences at State Street.
I N V E S T I N G I N O U R C O M M U N I T I E S
In the early days of the pandemic, the health crisis
uprooted nonprofit organizations and eroded
their traditional funding sources. State Street
Foundation, the company’s charitable arm, moved
quickly to provide vital grants to organizations
addressing the COVID-19 crisis around the world.
To help existing grantees continue to function
and fulfill their important missions during these
difficult times, we accelerated payments and
lifted funding restrictions to allow grantees to
use the funds for general operating expenses.
Reaffirming our commitment to addressing
socioeconomic and racial inequities in
education — a long-standing focus of the
Foundation — we engaged a third party to
assess the efficacy of our grant-making
on communities of color and identify
organizations that are doing meaningful
work to address racial injustice. As we update
our grant-making guidelines to explicitly
include our racial equity and social justice
goals, we will be positioned to build on our
record of investing in communities of color.
We also have expanded our global venture
philanthropy efforts, with multi-year
investments in Ireland, the United Kingdom,
Poland, and India, where we recently
announced a three-year partnership with
The/Nudge Centre for Social Innovation to
support nonprofit start-ups with a focus on
employability for disadvantaged urban youth.
L E A D
E N G A G E
G O V E R N
1
2
Triple our Black and Latinx* leadership (senior vice presidents+) and double our percentage
of Black and Latinx* populations over the next three years. Extend requirement to interview a
diverse slate of candidates for positions at all levels.
Examine all of State Street’s development and advancement programs and processes to
improve the mobility and development of Black and Latinx professionals.
3
Enlist our entire workforce in learning opportunities and conversations around
anti-racism and equity. Make these approaches/programs available to our clients.
4
Systematically review governance models within key management
committees to ensure inclusion and diverse representation.
Increase our spend with diverse suppliers over the next three years.
5
Hold ourselves accountable for strengthening Black- and Latinx-
owned businesses.
6
Work with our board to add Black and Latinx directors within
18 months and to expand its diversity efforts.
Partner with State Street Global Advisors’ Asset Stewardship and
7
determine what State Street can learn from others to develop best
practices and evolve to a best-in-class organization in combatting
racism and attracting, motivating, and retaining Black and Latinx talent.
8
Lead an effort with the asset management industry to attract
and advance more Black and Latinx people into our profession.
Establish combatting racism as a clear priority pillar
9
alongside education and workforce development, and
reprioritize State Street Foundation spending accordingly.
10
Leverage Juneteenth as a day of reflection to create
awareness and establish a State Street-wide day of
service focused on better understanding racism and
giving back to our communities.
STATE STREET | 2020 ANNUAL REPORT L E A D
E N G A G E
G O V E R N
67
S T A T E S T R E E T S T R O N G
O U R 1 0 A C T I O N S
1
Triple our Black and Latinx* leadership (senior vice presidents+) and double our percentage
of Black and Latinx* populations over the next three years. Extend requirement to interview a
diverse slate of candidates for positions at all levels.
2
Examine all of State Street’s development and advancement programs and processes to
improve the mobility and development of Black and Latinx professionals.
3
Enlist our entire workforce in learning opportunities and conversations around
anti-racism and equity. Make these approaches/programs available to our clients.
4
Systematically review governance models within key management
committees to ensure inclusion and diverse representation.
5
Increase our spend with diverse suppliers over the next three years.
Hold ourselves accountable for strengthening Black- and Latinx-
owned businesses.
6
Work with our board to add Black and Latinx directors within
18 months and to expand its diversity efforts.
Partner with State Street Global Advisors’ Asset Stewardship and
determine what State Street can learn from others to develop best
practices and evolve to a best-in-class organization in combatting
7
racism and attracting, motivating, and retaining Black and Latinx talent.
8
Lead an effort with the asset management industry to attract
and advance more Black and Latinx people into our profession.
Establish combatting racism as a clear priority pillar
9
alongside education and workforce development, and
reprioritize State Street Foundation spending accordingly.
10
Leverage Juneteenth as a day of reflection to create
awareness and establish a State Street-wide day of
service focused on better understanding racism and
giving back to our communities.
* Black, Asian, and minority ethnic (BAME)
globally (Black and Latinx, U.S. only)
STATE STREET | 2020 ANNUAL REPORT 68
“ T H E C O V I D -1 9 P A N D E M I C H A S P O S E D M A N Y C H A L L E N G E S O V E R T H E P A S T Y E A R
T H A T H A V E A F F E C T E D A L L O F U S ; H O W E V E R , T H E T R U T H I S T H A T T H E Y D O N O T
A F F E C T E V E R Y O N E E Q U A L L Y . I T I S E V I D E N T T H A T S M A L L B U S I N E S S E S A R E
D I S P R O P O R T I O N A T E L Y A T R I S K D U E T O T H E E C O N O M I C D O W N T U R N C A U S E D B Y
T H E P A N D E M I C , A N D I T I S O U R R E S P O N S I B I L I T Y T O A D D R E S S T H A T I N E Q U A L I T Y
I N S U P P O R T O F E A C H O T H E R A N D O U R L A R G E R C O M M U N I T I E S . ”
Y V O N N E G A R C I A
Chief of Staff to Chairman and CEO, and
Global Head of Internal Communications, Boston
Although the pandemic hampered our in-person
volunteer efforts during the year, State Street
employees gave their time in other ways.
We brought our Global Volunteer Week online,
with 2,600 volunteers taking on projects
that included career panels for students,
virtual drives for nonprofits, and mentoring
students in a remote study environment.
Building on the creativity that nonprofits
brought to their virtual projects in 2020,
we are reshaping our own volunteer models
and programs. We doubled the number of
paid volunteer days from two to four,
expanding the opportunities for employees
to share their time and talent throughout
the pandemic and beyond.
To help small and medium-sized firms
trying to survive, rebuild, and rebound
from the pandemic’s crushing economic
blows, we partnered with 18 Boston
region businesses and community leaders
to launch Small Business Strong.
Providing free resources and advice to women-,
minority-, and veteran-owned businesses, this
statewide initiative paired business owners with
volunteers from State Street and other local
companies to help them with issues ranging
from obtaining loans and grants to managing
operational, legal, and marketing matters.
During the year, the program provided
assistance, in eight languages, to more than
1,226 small businesses. State Street also
pledged $5 million over five years in seed
funding for the New Commonwealth Racial
Equity and Social Justice Fund (NCF). The NCF
is a coalition of Black and brown executives
in Massachusetts who are leveraging their
individual and collective power to address and
eliminate systemic racism and racial inequity
across the Commonwealth. The NCF will fund
initiatives and nonprofits supporting Black
and brown communities in four key areas:
policing and criminal justice reform; economic
empowerment; health care equity; and youth
education, empowerment, and civic engagement.
STATE STREET | 2020 ANNUAL REPORT 69
A M O R E S U S T A I N A B L E
F U T U R E F O R A L L
We realized a host of environmental accomplish-
ments throughout the year. We achieved carbon
neutrality in 2020, setting us on a path to realize
our objective of net zero emissions by 2050.
We raised our clean air commitment, increasing
our targets for reducing carbon dioxide
emissions after exceeding our previously set
goals from 2016. Our environmental profile,
as well as strong performance in social, and
governance areas, helped us become one of
two U.S. financial firms included in the Dow
Jones Sustainability World Index.
In addition, State Street Global Advisors
was included as one of only 20 global asset
managers in the United Nations-supported
Principles for Responsible Investing Leaders
Group for excellence in climate reporting, and
joined Climate Action+, a global investor-led
initiative to foster the clean energy transition.
As much progress as State Street made in
addressing environmental, social, and governance
(ESG) issues last year, the pandemic reinforced
the importance of driving ESG even deeper into
our core business strategy.
Our 2020 ESG Report features detailed
information on how we are executing against our
ESG priorities across our businesses, including
our own corporate sustainability goals and
our continued engagement with industry and
community efforts to drive positive change.
The report also includes stand-alone reports
for two frameworks: the Sustainability
Accounting Standards Board and the Task Force
on Climate-related Financial Disclosures.
STATE STREET | 2020 ANNUAL REPORT 70
N A T A L Y E K E N N E D Y
M A R C O C O B A R
J O A N N A K U C Z A
Vice President, Equity Sales BestX,
Business Analyst, Office of the CEO,
Officer, Internal Communications,
New York
Boston
Gdansk
“The 10 Actions demonstrate our
“As a U.S. military veteran, loyalty,
“When employees moved to
intentional focus on the changes
duty, respect, selfless service,
remote work in March, it was
we must make internally and
honor, integrity, and personal
vital to maintain our connectivity.
externally to bring about a more
courage (LDRSHIP) are values
Teams from the Inclusion and
diverse, equitable, and inclusive
that I live by. I am so proud
Diversity, Corporate Citizenship,
workplace, community, and
to work for a company that
and Internal Communications
industry. Being part of such
demonstrates true leadership.
groups collaborated with our
important work is a legacy I want
Amid overwhelming issues facing
employee networks to create
to leave to employees just starting
our clients, our communities,
online events, e-challenges,
their careers at State Street.”
and our employees, State Street
and digital activities that helped
truly listened — then stepped out
employees stay engaged.”
in front to do the right thing.”
FORWARD TOGETHER EMPLOYEE VOICESSTATE STREET | 2020 ANNUAL REPORT 71
“We’re working to institutionalize the transparency and trust that
connect development and mobility, ensuring that employees have
ongoing opportunities to grow and challenge themselves, and feel
valued and engaged. This is how we will establish State Street as
a talent magnet inside and out.”
P I N A R K I P
Global Head of Talent Marketplace, New York
F U T U R E F O C U S E D
Continuing to build a strong corporate culture
is central to our goal of becoming an even
higher performing organization. We have
established a consistent framework of values,
culture traits, and behaviors that help guide
and support our employees’ personal and
professional development, create an inclusive
environment, and encourage leadership.
The pandemic accelerated many of the
behaviors we have been working to embed
across our organization — take initiative
to deliver business objectives; collaborate
across teams to reach our shared goals;
drive better outcomes for clients, employees,
and shareholders while managing risk;
seek better ways of working and adopt
new solutions; and help others succeed.
These behaviors exemplify and augment
our culture traits, and will help us further
propel positive change in our company,
our industry, and our communities.
While much work remains, each of us has the
opportunity to contribute to a more resilient,
sustainable, and inclusive State Street.
STATE STREET | 2020 ANNUAL REPORT 72
E S G 2 0 2 0 H I G H L I G H T S
A C C E L E R A T I N G P R O G R E S S
We recognize the long-term implications of
environmental, social, and governance (ESG)
issues for our business, our industry, and our
world, and we are committed to driving ESG-
related change. The crises of 2020 underscored
the importance of engaging with all of our
stakeholders, as our teams stepped up efforts to
mitigate the devastating business and community
impacts of the global pandemic, while advancing
the dialogue around social justice and racial equity.
We also recommitted to accelerating our efforts as
a servicer and manager of investments to promote
sustainability. We were proud to achieve carbon
neutrality in our own global operations in 2020,
and have pledged to further absolute reductions
in our emissions to move toward net zero.
Reflecting the importance of ESG to our entire
business, we appointed Rick Lacaille, State Street
Global Advisors’ longtime chief investment officer
and chair of our executive Corporate Responsibility
Committee, to lead our ESG efforts. In his new
role, Rick will align our ESG solutions and insights
across the company, driving deeper integration
throughout our business and helping amplify our
message on important topics such as climate
risk. Furthering our push for more inclusive
leadership in the industry, State Street Global
Advisors announced to the companies in which
we invest our expectations around disclosure
of gender, racial, and ethnic diversity on their
boards and across their firms beginning in 2021.
“ C O V I D -1 9 H A S U N D E R S C O R E D T H E I M P O R T A N C E
O F I N T E G R A T I N G E S G F A C T O R S A N D T H I N K I N G
I N T O T H E I N V E S T M E N T P R O C E S S . ”
R I C K L A C A I L L E
Senior Investment Advisor, Global Head of ESG, London
STATE STREET | 2020 ANNUAL REPORT 73
2 0 2 0 S N A P S H O T
12%
10
Reduction toward our goal of
lowering CO2 by 27.5% by 2030
Actions Against Racism
and Inequality
20
Named to PRI Leaders Group of
20 Asset Managers for climate
reporting excellence
43%
Reduction of H2O use, exceeding
our goal of lowering H2O use by
10% by 2025
$1.2 M
1 OF 2
Donated to global public health
organizations addressing COVID-19
U.S.-domiciled financial services
firms on the Dow Jones
SustainabilityTM World Index
74%
Waste recycling rate compared
to a goal of 80% by 2025
1,226
Small Business Strong cases
5
New ESG ETFs launched by
State Street Global Advisors
100%
Carbon neutrality
$5 M
Pledged to New Commonwealth
Racial Equity and Social Justice Fund
3 OF 12
Female directors
13,000
3 OF 12
Bravo employee recognitions
Racially diverse directors
STATE STREET | 2020 ANNUAL REPORT 74
STATE STREET | 2020 ANNUAL REPORT 75
F I N A N C I A L R E V I E W
STATE STREET | 2020 ANNUAL REPORT 76
STATE STREET | 2020 ANNUAL REPORT UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File No. 001-07511
STATE STREET CORPORATION
(Exact name of registrant as specified in its charter)
MA
(State or other jurisdiction of incorporation)
One Lincoln Street
Boston, MA
(Address of principal executive offices)
04-2456637
(I.R.S. Employer Identification No.)
02111
(Zip Code)
(617) 786-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $1 par value per share
Depositary Shares, each representing a 1/4,000th ownership interest in a share of
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, without
par value per share
Depositary Shares, each representing a 1/4,000th ownership interest in a share of
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series G, without
par value per share
Trading
Symbol(s)
STT
Name of each exchange on which
registered
New York Stock Exchange
STT.PRD
New York Stock Exchange
STT.PRG
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the per share price ($63.55) at which the common equity
was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2020) was approximately $22.34 billion.
The number of shares of the registrant’s common stock outstanding as of January 29, 2021 was 351,786,357.
Portions of the following documents are incorporated by reference into Parts of this Report on Form 10-K, to the extent noted in such Parts, as indicated below:
(1) The registrant’s definitive Proxy Statement for the 2021 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A on or before April 30, 2021 (Part III).
STATE STREET CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
December 31, 2020
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Forward-Looking Statements
Risk Factors Summary
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Supplemental Item Information about our Executive Officers
PART II
Item 5
Item 6
Item 7
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
General
Overview of Financial Results
Consolidated Results of Operations
Total Revenue
Net Interest Income
Provision for Credit Losses
Expenses
Acquisition Costs
Restructuring and Repositioning Charges
Income Tax Expense
Line of Business Information
Investment Servicing
Investment Management
Financial Condition
Investment Securities
Loans and Leases
Cross-Border Outstandings
Risk Management
Credit Risk Management
Liquidity Risk Management
Operational Risk Management
Information Technology Risk Management
Market Risk Management
Model Risk Management
Strategic Risk Management
Capital
Off-Balance Sheet Arrangements
Significant Accounting Estimates
Recent Accounting Developments
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
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State Street Corporation | 2
Item 8
Financial Statements and Supplementary Data
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Condition
Consolidated Statement of Changes in Shareholders' Equity
Consolidated Statement of Cash Flows
Note 1. Summary of Significant Accounting Policies
Note 2. Fair Value
Note 3. Investment Securities
Note 4. Loans and Allowance for Credit Losses
Note 5. Goodwill and Other Intangible Assets
Note 6. Other Assets
Note 7. Deposits
Note 8. Short-Term Borrowings
Note 9. Long-Term Debt
Note 10. Derivative Financial Instruments
Note 11. Offsetting Arrangements
Note 12. Commitments and Guarantees
Note 13. Contingencies
Note 14. Variable Interest Entities
Note 15. Shareholders' Equity
Note 16. Regulatory Capital
Note 17. Net Interest Income
Note 18. Equity-Based Compensation
Note 19. Employee Benefits
Note 20. Occupancy Expense and Information Systems and Communications
Expense
Note 21. Expenses
Note 22. Income Taxes
Note 23. Earnings Per Common Share
Note 24. Line of Business Information
Note 25. Revenue From Contracts with customers
Note 26. Non-U.S. Activities
Note 27. Parent Company Financial Statements
Note 28. Subsequent Events
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
EXHIBIT INDEX
SIGNATURES
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
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State Street Corporation | 3
Forward-Looking Statements
This Form 10-K, as well as other reports and
proxy materials submitted by us under the Securities
Exchange Act of 1934, registration statements filed
by us under the Securities Act of 1933, our annual
report to shareholders and other public statements
we may make, may contain statements (including
statements in our Management's Discussion and
Analysis included in such reports, as applicable) that
are considered “forward-looking statements” within
the meaning of U.S. securities laws, including
statements about our goals and expectations
regarding our business,
financial and capital
condition, results of operations, strategies, cost
savings and transformation initiatives, investment
portfolio performance, dividend and stock purchase
programs, outcomes of legal proceedings, market
growth, acquisitions, joint ventures and divestitures,
client growth and new technologies, services and
opportunities, as well as industry, governmental,
regulatory, economic and market trends, initiatives
and developments, the business environment and
other matters that do not relate strictly to historical
facts.
Terminology such as “plan,” “expect,” “intend,”
“objective,” “forecast,” “outlook,” “believe,” “priority,”
“anticipate,” “estimate,” “seek,” “may,” “will,” “trend,”
“target,” “strategy” and “goal,” or similar statements
or variations of such terms, are intended to identify
forward-looking statements, although not all forward-
looking statements contain such terms.
to
Forward-looking statements are subject
various risks and uncertainties, which change over
time, are based on management's expectations and
assumptions at the time the statements are made and
are not guarantees of future results. Management's
expectations and assumptions, and the continued
validity of the forward-looking statements, are subject
to change due to a broad range of factors affecting
the U.S. and global economies,
regulatory
environment and the equity, debt, currency and other
financial markets, as well as factors specific to State
Street and its subsidiaries, including State Street
Bank. Factors that could cause changes in the
forward-
expectations or assumptions on which
looking statements are based cannot be foreseen
with certainty and include the factors described under
the headings "Risk Factors Summary" and "Risk
Factors" and elsewhere in this Form 10-K, including
under "Management's Discussion and Analysis."
Actual outcomes and
results may differ
materially from what is expressed in our forward-
looking statements and from our historical financial
results due to the factors discussed in this section
and elsewhere in this Form 10-K or disclosed in our
other SEC filings. Forward-looking statements in this
Form 10-K should not be relied on as representing
our expectations or assumptions as of any time
subsequent to the time this Form 10-K is filed with the
SEC. We undertake no obligation to revise our
forward-looking statements after the time they are
made. The factors discussed herein are not intended
to be a complete statement of all risks and
uncertainties that may affect our businesses. We
cannot anticipate all developments
that may
adversely affect our business or operations or our
consolidated results of operations, financial condition
or cash flows.
Forward-looking statements should not be
viewed as predictions and should not be the primary
basis on which investors evaluate State Street. Any
investor in State Street should consider all risks and
uncertainties disclosed in our SEC filings, including
our filings under the Securities Exchange Act of 1934,
in particular our annual reports on Form 10-K, our
quarterly reports on Form 10-Q and our current
reports on Form 8-K, or registration statements filed
under the Securities Act of 1933, all of which are
accessible on the SEC's website at www.sec.gov or
on the “Investor Relations” section of our corporate
website at www.statestreet.com.
Risk Factors Summary
The following is a summary of the material risks
we are exposed to in the course of our business
activities. The below summary does not contain all of
the information that may be important to you, and you
should read the below summary together with the
more detailed discussion of risks set forth under the
heading "Risk Factors," as well as elsewhere in this
"Management's
Form 10-K under
Discussion and Analysis."
the heading
Strategic Risks
are
• We
intense
competition, which could negatively affect our
profitability;
subject
to
• We are subject to significant pricing
pressure and variability in our financial results
and our AUC/A and AUM;
• Our development and completion of
new products and services, including State
Street Alpha, may
involve costs and
dependencies and expose us to increased
risk;
• Our business may be negatively
affected by our failure to update and maintain
our technology infrastructure;
• The COVID-19 pandemic continues
to create significant risks and uncertainties
for our business;
• Acquisitions, strategic alliances, joint
ventures and divestitures, and the integration,
retention and development of the benefits of
our acquisitions, pose risks for our business;
• The integration of CRD may be more
difficult, costly or
than
expected, and the anticipated benefits and
cost synergies may not be fully realized; and
time consuming
State Street Corporation | 4
• Competition for qualified members of
our workforce is intense, and we may not be
able to attract and retain the highly skilled
people we need to support our business.
Financial Market Risks
• We have significant
• We could be adversely affected by
geopolitical, economic and market conditions;
International
operations, and disruptions in European and
Asian economies could have an adverse
effect on our consolidated
results of
operations or financial condition;
• Our investment securities portfolio,
consolidated
and
consolidated results of operations could be
adversely affected by changes in the financial
markets;
condition
financial
• Our business activities expose us to
interest rate risk;
also
institutions, and
• We assume significant credit risk to
have
counterparties, who may
substantial financial dependencies with other
financial
these credit
exposures and concentrations could expose
us to financial loss;
• Our
represents a
significant portion of our consolidated
revenue and is subject to decline based on,
among other factors, the investment activities
of our clients;
revenue
fee
•
to effectively
If we are unable
liquidity, our
manage our capital and
consolidated
financial condition, capital
ratios, results of operations and business
prospects could be adversely affected;
• We may need to raise additional
capital or debt in the future, which may not be
available to us or may only be available on
unfavorable terms; and
•
If we experience a downgrade in our
credit ratings, or an actual or perceived
reduction
financial strength, our
borrowing and capital costs, liquidity and
reputation could be adversely affected.
in our
Compliance and Regulatory Risks
including
• Our business and capital-related
share
activities,
repurchases, may be adversely affected by
capital and liquidity standards required as a
result of capital stress testing;
common
• We face extensive and changing
government regulation in the jurisdictions in
which we operate, which may increase our
costs and compliance risks;
• We are subject to enhanced external
oversight as a result of the resolution of prior
regulatory or governmental matters;
• Our businesses may be adversely
affected by government enforcement and
litigation;
to various
• We are subject
legal
proceedings relating to the manner in which
we have invoiced certain expenses, and the
outcome of which could materially adversely
affect our results of operations or harm our
business or reputation;
• Any misappropriation
the
confidential information we possess could
have an adverse impact on our business and
could subject us
regulatory actions,
to
litigation and other adverse effects;
of
• Our calculations of risk exposures,
total RWA and capital ratios depend on data
inputs, formulae, models, correlations and
assumptions that are subject to change,
which could materially
risk
exposures, our total RWA and our capital
ratios from period to period;
impact our
• Changes
in accounting standards
may adversely affect our consolidated
financial statements;
in
• Changes
rules or
regulations, challenges to our tax positions
and changes in the composition of our pre-
tax earnings may increase our effective tax
rate; and
laws,
tax
• The transition away from LIBOR may
result in additional costs and increased risk
exposure.
Operational Risks
• Our control environment may be
inadequate, fail or be circumvented, and
operational risks could adversely affect our
consolidated results of operations;
• Cost shifting to non-U.S. jurisdictions
and outsourcing may expose us to increased
operational risk and reputational harm and
may not result in expected cost savings;
•
If we, or the third parties with which
we do business, experience failures, attacks
or unauthorized access
their
respective information technology systems or
facilities, or disruptions to our continuous
operations, this could result in significant
costs, reputational damage and limits on our
business activities;
to our or
• Long-term contracts expose us to
pricing and performance risk;
• Our businesses may be negatively
affected by adverse publicity or other
reputational harm;
• We may not be able to protect our
intellectual property;
• The quantitative models we use to
manage our business may contain errors that
could result in material harm;
State Street Corporation | 5
and
• Our
reputation
business
prospects may be damaged if our clients
incur substantial losses or are restricted in
redeeming their interests in investment pools
that we sponsor or manage;
• The impacts of climate change could
adversely affect our business operations; and
• We may incur losses as a result of
unforeseen events including terrorist attacks,
natural disasters, the emergence of a new
pandemic or acts of embezzlement.
PART I
ITEM 1. BUSINESS
GENERAL
the
laws of
in 1969 under
State Street Corporation, referred to as the
Parent Company, is a financial holding company
organized
the
Commonwealth of Massachusetts. Our executive
offices are located at One Lincoln Street, Boston,
Massachusetts 02111 (telephone (617) 786-3000).
For purposes of this Form 10-K, unless the context
requires otherwise, references to “State Street,” “we,”
terms mean State Street
“us,” “our” or similar
Corporation and its subsidiaries on a consolidated
basis. The Parent Company is a source of financial
and managerial strength to our subsidiaries. Through
our subsidiaries,
including our principal banking
subsidiary, State Street Bank and Trust Company,
referred to as State Street Bank, we provide a broad
range of
to
institutional investors worldwide, with $38.79 trillion of
AUC/A and $3.47 trillion of AUM as of December 31,
2020.
financial products and services
As of December 31, 2020, we had consolidated
total assets of $314.71 billion, consolidated total
total
deposits of $239.80 billion, consolidated
shareholders' equity of $26.20 billion and over 39,000
employees. We operate in more than 100 geographic
markets worldwide,
the U.S., Canada,
including
Europe, the Middle East and Asia.
On
the “Investor Relations” section of our
corporate website at www.statestreet.com, we make
available, free of charge, all reports we electronically
file with, or furnish to, the SEC including our Annual
Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as
any amendments to those reports, as soon as
reasonably practicable after those documents have
been filed with, or furnished to, the SEC. These
documents are also accessible on the SEC’s website
at www.sec.gov. We have included the website
addresses of State Street and the SEC in this report
as inactive textual references only. Information on
those websites is not incorporated by reference in this
Form 10-K.
We have Corporate Governance Guidelines, as
well as written charters for the Examining and Audit
Committee, the Executive Committee, the Human
Resources Committee, the Nominating and Corporate
Governance Committee, the Risk Committee and the
Technology and Operations Committee of our Board
of Directors, or Board, and a Code of Ethics for senior
financial officers, a Standard of Conduct for Directors
and a Standard of Conduct for our employees. Each
of these documents is posted on the "Investor
Relations" section of our website under "Corporate
Governance."
regulatory standards,
We provide additional disclosures required by
including
applicable bank
supplemental qualitative and quantitative information
with respect to regulatory capital (including market
risk associated with our trading activities) and the
liquidity coverage ratio, summary results of State
Street-run stress tests which we conduct under the
Dodd-Frank Act and resolution plan disclosures
required under the Dodd-Frank Act. These additional
disclosures are available on the “Investor Relations”
section of our website under "Filings and Reports."
We use acronyms and other defined terms for
certain business terms and abbreviations, as defined
on the acronyms list and glossary under Item 8 in this
Form 10-K.
BUSINESS DESCRIPTION
Overview
We conduct our business primarily through State
Street Bank, which traces its beginnings to the
founding of the Union Bank in 1792. State Street
Bank's current charter was authorized by a special
Act of the Massachusetts Legislature in 1891, and its
present name was adopted in 1960. State Street
Bank operates as a specialized bank, referred to as a
trust or custody bank, that services and manages
assets on behalf of its institutional clients.
funds and other
Our clients include mutual funds, collective
investment
investment pools,
corporate and public retirement plans, insurance
companies, foundations, endowments and investment
managers.
LINES OF BUSINESS
We have two lines of business: Investment
Servicing and Investment Management.
Investment Servicing
Our
Investment Servicing
line of business
performs core custody and related value-added
functions, such as providing institutional investors
with clearing, settlement and payment services. Our
financial services and products allow our
large
financial
institutional
transactions on a daily basis in markets across the
globe. As most
investors cannot
institutional
economically or efficiently build their own technology
and operational processes necessary to facilitate their
global securities settlement needs, our role as a
investor clients
to execute
State Street Corporation | 6
global trust and custody bank is generally to aid our
clients to efficiently perform services associated with
the clearing, settlement and execution of securities
transactions and related payments.
regulation);
record-keeping;
Our Investment Servicing products and services
include: custody; product accounting; daily pricing
and administration; master trust and master custody;
depotbank services (a fund oversight role created by
non-U.S.
cash
management; foreign exchange, brokerage and other
trading services; securities finance and enhanced
custody products; deposit and short-term investment
financing;
facilities;
investment
lease
investment manager
manager and alternative
operations outsourcing; performance,
risk and
compliance analytics; and financial data management
to support institutional investors.
loans and
Included within our Investment Servicing line of
business is Charles River Systems, Inc. (CRD), which
we acquired in October 2018. The Charles River
Investment Management solution is a technology
offering which is designed to automate and simplify
the institutional investment process across asset
classes, from portfolio management and risk analytics
through
trading and post-trade settlement, with
integrated compliance and managed data throughout.
With the acquisition of CRD, we took the first step in
front-to-back platform, State Street
building our
AlphaSM (State Street Alpha). Today, our State Street
Alpha platform combines portfolio management,
trading and execution, advanced data aggregation,
analytics and compliance tools, and integration with
other industry platforms and providers.
We provide some or all of the Investment
Servicing integrated products and services to clients
in the U.S. and in many other markets, including,
among others, Australia, Cayman Islands, France,
Germany, Hong Kong,
Italy, Japan,
Luxembourg, South Korea and the U.K. As of
December 31, 2020, we serviced AUC/A of
the Americas,
approximately $28.25
approximately $8.10 trillion in Europe and the Middle
East and approximately $2.45 trillion in the Asia-
Pacific region1.
Ireland,
trillion
in
Investment Management
for our clients. Our
Our Investment Management line of business,
through State Street Global Advisors, provides a
broad range of investment management strategies
investment
and products
management strategies and products span the risk/
reward spectrum for equity, fixed income and cash
assets, including core and enhanced indexing, multi-
asset strategies, active quantitative and fundamental
active
investment
strategies. Our AUM is currently primarily weighted to
indexed strategies. In addition, we provide a breadth
capabilities and alternative
of services and solutions, including environmental,
social and governance investing, defined benefit and
defined contribution and Global Fiduciary Solutions
(formerly Outsourced Chief Investment Officer). State
Street Global Advisors is also a provider of ETFs,
including the SPDR® ETF brand. While management
fees are primarily determined by the values of AUM
employed,
and
management
factors as well,
including the benchmarks specified in the respective
management agreements related to performance
fees. As of December 31, 2020, State Street Global
Advisors had AUM of approximately $3.47 trillion.
investment
fees reflect other
strategies
the
included
Additional
is provided under
information about our
lines of
“Line of Business
business
Information”
our Management's
Discussion and Analysis, and in Note 24 to the
consolidated financial statements in this Form 10-K.
Additional information about our non-U.S. activities is
included in Note 26 to the consolidated financial
statements in this Form 10-K.
in
COMPETITION
We operate in a highly competitive environment
in all areas of our business globally. Our competitors
include a broad range of financial institutions and
servicing companies, including other custodial banks,
deposit-taking institutions, investment management
firms, insurance companies, mutual funds, broker/
dealers,
investment banks, benefits consultants,
investment analytics businesses, business service
and software companies and information services
firms. As our businesses grow and markets evolve,
we may encounter increasing and new forms of
competition around the world.
in
We believe
the markets
that many key
factors drive
competition
for our business.
Technological expertise, economies of scale, required
levels of capital, pricing, quality and scope of
services, and sales and marketing are critical to our
Investment Servicing
line of business. For our
line of business, key
Investment Management
competitive factors include expertise, experience,
availability of related service offerings, quality of
service, price, efficiency of our products and services,
and performance.
Our competitive success may depend on our
ability to develop and market new and innovative
services, to adopt or develop new technologies, to
implement efficiencies into our operational processes,
to bring new services to market in a timely fashion at
competitive prices, to integrate existing and future
products and services effectively into State Street
Alpha, to continue to expand our relationships with
existing clients, and to attract new clients.
We are a systemically
important
institution
(SIFI) and are subject
financial
to extensive
1 Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
State Street Corporation | 7
regulation and supervision with respect
to our
operations and activities. Not all of our competitors
have similarly been designated as systemically
important nor are all of them subject to the same
degree of regulation as a bank or financial holding
company, and therefore some of our competitors may
not be subject to the same limitations, requirements
and standards with respect to their operations and
activities. Most other financial institutions designated
as systemically important have substantially greater
financial resources and a broader base of operations
than we do and are, consequently, in a better
competitive position to manage and bear the costs of
this
requirement. See
"Supervision and Regulation" in this Item for more
information.
regulatory
enhanced
HUMAN RESOURCES
reputation. We seek
the company’s value proposition,
Our employees are a core asset and a key
driver of our long-term performance. Our employees
innovate
drive
better ways to serve our clients and act as custodians
of our
to empower our
employees by providing development and learning
opportunities to keep our personnel engaged and
help our teams reach their full potential, by promoting
an inclusive and diverse workplace and by improving
productivity and efficiency. We first measure our
executives’ business and technical performance, and
then may further adjust their compensation, based on
their risk performance and their performance against
critical leadership behaviors and culture traits that
align with our human capital management strategy.
In 2020,
the COVID-19 pandemic had a
significant impact on how we managed our human
capital. Nearly all of our workforce began working
remotely, reaching approximately 90% in April 2020,
and we instituted safety protocols and procedures for
the essential employees who returned to work on site.
During this period of uncertainty for our employees,
we committed in the first quarter of 2020 that no
workforce reductions would occur in 2020, other than
for performance or conduct reasons. Due to the net
impact of hiring and attrition levels, both of which we
monitor closely, our workforce at the end of 2020 was
up 1% compared to 2019 at approximately 39,000
employees, 67% of whom are located outside the
U.S. Moreover, approximately 90% of responding
employees indicated during an all-employee survey
that they were proud of the way the company is
responding to the crisis.
Reflecting the key role of human capital in our
business strategy, in 2020, we renamed the Board of
Directors’ Executive Compensation Committee as the
Human Resources Committee and highlighted in its
charter the Committee’s oversight responsibilities for
human capital management, including recruitment,
retention and inclusion and diversity initiatives. We
also established the Enterprise Talent Management
committee,
a management-level
Committee,
consisting of senior leaders of our organization, which
oversees our global business activities. The
Enterprise Talent Management Committee provides
leadership,
for all
aspects of our global talent related initiatives that
support achievement of our strategic priority to
become a high-performing organization.
input and advisory oversight
Our Culture and Values
Our culture and values help to define us as a
company and are embodied in the following culture
traits we expect of our employees:
• Choose to Own It;
• Break Through Silos;
• Deliver Results with Integrity and
Speed;
• Do Better Every Day; and
• Care for Our Colleagues, Clients and
Community.
We believe that an inclusive and diverse culture
where all employees feel valued and engaged makes
State Street a desirable place to work, helps us to
attract key talent and retain employees as they grow
in their careers and fosters an environment that
and
individual’s
enhances
professional satisfaction.
productivity
each
The integrity and ethical decision-making of our
employees is also paramount for our culture. We
encourage employees to speak up if they see
behavior that is inconsistent with our Standard of
Conduct and values, and we provide multiple
channels for them to do so. Our goal is to promote
ethical conduct by treating minor policy breaches as
learning opportunities, with major policy breaches and
misconduct
treated promptly, professionally, and
seriously.
Compensation Philosophy
Our overall aim with respect to compensation is
to reward and motivate high-performing employees
and to provide competitive incentive opportunities,
encouraging employees to learn and grow in their
careers. Compensation is typically comprised of fixed
compensation, which reflects individual skills and
abilities relative to role requirements, and variable
total
compensation, which
link
to
organizational,
compensation
business
individual
performance. Our compensation program is intended
to drive our business strategy by differentiating pay
based on performance against annual objectives.
opportunities
risk management and
is designed
line,
to
Development and Learning
and
Professional
employee
development
learning are key elements of our talent retention
strategy. We seek
learning and
development programs with our long-term strategy by
offering skills enhancement targeting the rapidly
changing, technology-centric demands of the financial
services industry to our workforce. We also provide
to align our
State Street Corporation | 8
targeted professional development opportunities and
new roles for key talent, which we believe helps to
deepen our employees’ skillsets and provides them
with a broader perspective on the organization. To
help leverage our internal talent, we launched an
internal talent marketplace during 2020. The talent
marketplace is an innovative way for employees to
access new roles, skills, and opportunities, and for
managers to recruit internal talent. By broadening
every employee’s access to roles and by showing
managers the full breadth of talent at State Street, our
goal is to provide better pathways to long-term
success for all employees.
Inclusion and Diversity
intended
While inclusion and diversity have long been a
focus for our company, we are working to accelerate
progress against our racial/ethnic diversity goals and
build more equity through all of our talent processes
and within our communities via “10 Actions Against
Racism and Inequality,” which we announced in July
2020. These concrete actions are
to
address racial and social injustice by improving
inclusion and diversity within our own organization
and advocating for the same in our industry. While we
have taken many steps to address inequality and
racism in our organization, in our communities, and
through our asset stewardship program, we have
more work to do. This includes our plan to increase
the representation, development, and advancement
of Black and Latinx employees and working with our
Board of Directors to add Black and Latinx directors
by 2022. More details on the “10 Actions” are
available on our website.
At the end of 2020, our global workforce was
54.5% male and 45.2%
female, and women
represented 30.1% of our leadership (defined as
senior vice president level and above). In the U.S.,
30% of our workforce self-identified as employees of
color. We also publish our demographic data in our
EEO-1 report, which is included in our Corporate
our
Responsibility
‘Environmental, Social and Governance Report’ for
2020), and can be found in the Values section of our
website.
(renamed
Report
as
Organizational Effectiveness
Driving improvements in both individual and
organizational productivity is a key ongoing focus of
our overall human capital management strategy. We
seek to enhance the value each employee is able to
contribute by investing in new technologies, designing
more effective organizational structures, improving
processes and operating models, optimizing our
global footprint, and aligning incentives to outcomes.
We believe that improving the productivity of our
workforce will yield more engaged and higher
performing employees and better products and
services for our clients.
Additional Information
strategy,
Additional information on our human capital
management
detailed
demographic data, will be contained in our 2020
Environmental, Social and Governance Report, which
we expect to make available on our website by April
30, 2021.
including
SUPERVISION AND REGULATION
We are registered with the Federal Reserve as a
bank holding company pursuant to the Bank Holding
Company Act of 1956. The Bank Holding Company
Act generally limits the activities in which bank
holding companies and their non-banking subsidiaries
may engage to managing or controlling banks and to
a range of activities that are considered to be closely
related to banking. Bank holding companies that have
elected to be treated as financial holding companies,
such as the Parent Company, may engage in a
broader range of activities considered to be "financial
in nature." The regulatory limits on our activities also
apply to non-banking entities that we are deemed to
“control” for purposes of the Bank Holding Company
Act, which may include companies of which we own
or control 5% or more of a class of voting shares. The
Federal Reserve may order a bank holding company
to terminate any activity, or its ownership or control of
a non-banking subsidiary, if the Federal Reserve finds
that the activity, ownership or control constitutes a
serious risk to the financial safety, soundness or
stability of a banking subsidiary or is inconsistent with
sound banking principles or statutory purposes. The
Bank Holding Company Act also requires a bank
holding company to obtain prior approval of the
Federal Reserve before it acquires substantially all
the assets of any bank, or ownership or control of
more than 5% of the voting shares of any bank.
The Parent Company has elected to be treated
as a financial holding company and, as such, may
engage in a broader range of non-banking activities
than permitted for bank holding companies and their
subsidiaries that have not elected to become financial
holding companies. Financial holding companies may
engage directly or indirectly, either de novo or by
acquisition, in activities that are defined by the
Federal Reserve to be financial in nature, provided
that the financial holding company gives the Federal
Reserve after-the-fact notice of the new activities.
Activities defined to be financial in nature include, but
are not limited to: providing financial or investment
advice; underwriting; dealing in or making markets in
securities; making merchant banking investments,
subject to significant limitations; and any activities
previously found by the Federal Reserve to be closely
related to banking. In order to maintain our status as
a financial holding company, we and each of our U.S.
depository institution subsidiaries are expected to be
well capitalized and well managed, as defined in
applicable regulations and determined in part by the
State Street Corporation | 9
results of regulatory examinations, and must comply
with Community Reinvestment Act obligations. Failure
to maintain these standards may result in restrictions
on our activities and may ultimately permit the
Federal Reserve to take enforcement actions against
us and restrict our ability to engage in activities
defined to be financial in nature. Currently, under the
Bank Holding Company Act, we may not be able to
engage in new activities or acquire shares or control
of other businesses.
is subject has
In response to the 2008 financial crisis, as well
as other factors, such as technological and market
changes, both the scope of the laws and regulations
and the intensity of the supervision to which our
business
increased. Regulatory
enforcement and fines have also increased across
the banking and financial services sector. Many of
these changes have occurred as a result of the Dodd-
Frank Act and its implementing regulations, most of
which are now in place. Subsequently, in May 2018,
the Economic Growth, Regulatory Relief and
Consumer Protection Act (EGRRCPA) was enacted.
The EGRRCPA’s revisions to the U.S. financial
regulatory framework have altered certain laws and
regulations applicable to us and other major financial
services firms. Irrespective of any regulatory change,
we expect that our business will remain subject to
extensive regulation and supervision.
in
In addition, increased regulatory requirements
and initiatives have been and are being implemented
internationally with respect to financial institutions,
including the implementation of the Basel III rule
(refer to “Regulatory Capital Adequacy and Liquidity
Standards”
this “Supervision and Regulation”
section and under "Capital" in “Financial Condition” in
our Management's Discussion and Analysis in this
Form 10-K for a discussion of Basel III), the European
Commission’s Investment Firm Review and Central
Securities Depositories Regulation, as well as
upcoming proposals for a review of the Alternative
Investment Fund Managers Directive and proposals
under the Capital Markets Union Action Plan.
(including
organizations
Many aspects of our business are subject to
regulation by other U.S.
federal and state
governmental and regulatory agencies and self-
securities
regulatory
exchanges), and by non-U.S. governmental and
regulatory agencies and self-regulatory organizations.
Some aspects of our public disclosure, corporate
governance principles and internal control systems
are subject to the Sarbanes-Oxley Act of 2002 (SOX),
the Dodd-Frank Act and regulations and rules of the
SEC and the New York Stock Exchange.
Regulatory Capital Adequacy and Liquidity
Standards
Basel III Rule
We, as an advanced approaches banking
organization, are subject to the Basel III framework in
the U.S. The provisions of the Basel III rule related to
minimum capital requirements, regulatory capital
buffers and deductions and adjustments to regulatory
capital were fully implemented as of January 1, 2019.
We are also subject to the market risk capital rule
jointly issued by U.S. banking regulators to implement
the changes to the market risk capital framework in
the U.S.
in
As required by the Dodd-Frank Act, we, as an
advanced approaches banking organization, are
subject to a "capital floor," also referred to as the
the assessment of our
Collins Amendment,
regulatory capital adequacy, including the capital
conservation buffer and countercyclical capital buffer
described below in this "Supervision and Regulation"
section. Our risk-based capital ratios for regulatory
assessment purposes are the lower of each ratio
calculated under the standardized approach and the
advanced approaches.
Risk Weighted Assets
The Basel III rule provides for two frameworks
for the calculation of RWA for purposes of bank
regulatory compliance: the “standardized” approach
and the “advanced” approaches, which are applicable
to advanced approaches banking organizations, like
us.
The
approach
standardized
prescribes
standardized risk weights for certain on- and off-
balance sheet exposures in the calculation of RWA.
The advanced approaches consist of the Advanced
Internal Ratings-Based Approach (AIRB) used for the
calculation of RWA related to credit risk and the
Advanced Measurement Approach (AMA) used for
the calculation of RWA related to operational risk.
a
rule
final
approach
(SA-CCR),
standardized
the
credit
that, among other
In November 2019, the Federal Reserve and the
other U.S. federal banking agencies (U.S. Agencies)
things,
issued a
implements
for
counterparty
new
risk
methodology for calculating the exposure amount for
derivative contracts. Under the final rule, which
becomes effective on January 1, 2022, we will have
the option to use the SA-CCR or the Internal Model
Methodology (IMM) to measure the exposure amount
of our cleared and uncleared derivative transactions
under our advanced approaches calculation. We will
be required to determine the amount of these
exposures using the SA-CCR under our standardized
approach capital calculation. Due to the nature of our
trading activities, the impact of the final rule may have
a greater proportional impact on our RWA than on
some of our G-SIB peers. In addition, under the final
rule we will be required to use a simplified formula to
determine
the RWA amount of our central
counterparty default fund contributions.
State Street Corporation | 10
Minimum Risk-Based Capital Requirements
Among other things, the Basel III rule (as
amended) requires:
• a minimum CET1 risk-based capital
ratio of 4.5% and a minimum SLR of 3% for
advanced approaches banking organizations;
• a minimum Tier 1 risk-based capital
ratio of 6%;
• a minimum total capital ratio of 8%;
and
•
the stress capital and countercyclical
capital buffers, referenced below, as well as a
G-SIB surcharge and the enhanced SLR
(which acts as an SLR buffer) described in
in our
in "Financial Condition"
"Capital"
Management's Discussion and Analysis in
this Form 10-K.
Under the Basel III rule, our total regulatory
capital is composed of three tiers: CET1 capital, Tier
1 capital (which includes CET1 capital), and Tier 2
capital. The total of Tier 1 and Tier 2 capital, adjusted
as applicable, is referred to as total regulatory capital.
CET1 capital
is composed of core capital
elements, such as qualifying common shareholders'
equity and related surplus plus retained earnings and
the cumulative effect of foreign currency translation
plus net unrealized gains (losses) on debt and equity
securities classified as AFS, less treasury stock and
less goodwill and other intangible assets, net of
related deferred
is
composed of CET1 capital plus additional Tier 1
capital instruments which, for us, includes four series
of preferred equity outstanding as of December 31,
includes certain eligible
2020. Tier 2 capital
instruments. Total
subordinated
regulatory capital consists of Tier 1 capital and Tier 2
capital.
liabilities. Tier 1 capital
long-term debt
tax
Certain other items, if applicable, must be
deducted from Tier 1 and Tier 2 capital, including
certain investments in the capital of unconsolidated
banking, financial and insurance entities and the
amount of expected credit losses that exceeds
recorded allowances for loan and other credit losses.
Expected credit losses are calculated for wholesale
credit exposures by formula in conformity with the
Basel III rule.
G-SIB Surcharge
The eight U.S. bank holding companies deemed
to be G-SIBs, including us, are required to calculate
the G-SIB surcharge annually according to two
methods, and be bound by the higher of the two:
• Method
1: Assesses
systemic
importance based upon five equally-weighted
components:
interconnectedness,
complexity, cross-jurisdictional activity and
substitutability; or
size,
• Method 2: Alters the calculation from
in a short-term
Method 1 by
wholesale
in place of
substitutability and applying a 2x multiplier to
the sum of the five components.
factoring
funding
score
Method 2 is the binding methodology for us as of
December 31, 2020, and our applicable surcharge for
to be 1.0% based on a
2021 was calculated
calculation date of December 31, 2019.
Stress Capital Buffer
final rule
the standardized approach,
On March 4, 2020, the U.S. Agencies issued
that
the Stress Capital Buffer (SCB)
replaces, under
the
capital conservation buffer (2.5%) with an SCB
calculated as the difference between the institution’s
starting and lowest projected CET1 ratio under the
CCAR severely adverse scenario plus planned
common stock dividend payments (as a percentage
of RWA) from the fourth through seventh quarter of
the CCAR planning horizon. The SCB requirement,
which became effective October 1, 2020, can be no
less than 2.5% of RWA. On June 25, 2020, we were
notified by the Federal Reserve of our preliminary
SCB at the minimum of 2.5% for the period of
October 1, 2020 through September 30, 2021, which
was later finalized on August 10, 2020. For additional
information about the SCB final rule, refer to “Capital
this
Planning, Stress Tests and Dividends”
"Supervision and Regulation" section.
in
Under the SCB final rule, a banking organization
would be able to make capital distributions (subject to
other regulatory constraints, such as regulatory
review of its capital plans) and discretionary bonus
payments without specified limitations, as long as it
maintains the required capital conservation buffer of
2.5% plus the applicable G-SIB surcharge (plus any
potentially applicable countercyclical capital buffer)
over the minimum required risk-based capital ratios
and leverage based requirements. From time to time,
banking
under
regulators may establish a minimum countercyclical
capital buffer up to a maximum of 2.5% of total RWA.
The countercyclical capital buffer was initially set by
banking regulators at zero, and has not been
increased since its inception.
conditions,
economic
certain
Assuming a countercyclical buffer of 0%, the
minimum capital ratios as of January 1, 2021,
including a capital conservation buffer and an SCB of
2.5% for advanced and standardized approaches,
respectively, and a G-SIB surcharge of 1.0%, are
8.0% for CET1 capital, 9.5% for Tier 1 risk-based
capital and 11.5% for total risk-based capital, in order
for us to make capital distributions and discretionary
bonus payments without limitation.
State Street Corporation | 11
Leverage Ratios
We are subject to a minimum Tier 1 leverage
ratio and a supplementary leverage ratio. The Tier 1
leverage ratio is based on Tier 1 capital and adjusted
quarterly average on-balance sheet assets. The Tier
1 leverage ratio differs from the SLR primarily in that
the denominator of the Tier 1 leverage ratio is a
quarterly average of on-balance sheet assets, while
the SLR additionally
includes off-balance sheet
exposures. We must maintain a minimum Tier 1
leverage ratio of 4%.
We are also subject to a minimum SLR of 3%,
and as a U.S. G-SIB, we must maintain a 2% SLR
buffer in order to avoid any limitations on distributions
to shareholders and discretionary bonus payments to
certain executives. If we do not maintain this buffer,
limitations on these distributions and discretionary
bonus payments would be increasingly stringent
based upon the extent of the shortfall.
rule
final
the calculation of Tier 1
In November 2019, pursuant to the EGRRCPA,
that
the U.S. Agencies adopted a
establishes a deduction for central bank deposits
from a custodial banking organization’s total leverage
exposure for purpose of calculating the SLR and
which is not applicable to total leverage exposure
under
leverage. This
deduction is equal to the lesser of (i) the total amount
of funds the custodial banking organization and its
consolidated subsidiaries have on deposit at
qualifying central banks and (ii) the total amount of
client funds on deposit at the custodial banking
organization that are linked to fiduciary or custodial
and safekeeping accounts. The rule became effective
on April 1, 2020. For the quarter ended December 31,
2020, we excluded $76.7 billion of average balances
held on deposit at central banks
the
denominator used in the calculation of our SLR based
on this custodial banking exclusion. The TLAC and
LTD that State Street is required to hold under SLR-
based requirements reflect the exclusion of certain
central bank balances as a consequence of the rule.
from
31,
2021,
until March
In addition, on May 15, 2020, the U.S. banking
regulators issued an interim final rule temporarily
permitting,
banking
organizations to exclude U.S. Treasury securities and
deposits at Federal Reserve Banks
the
calculation of the SLR denominator. While we already
receive the benefit of excluding central bank deposits
pursuant
the
EGRRCPA, we have further excluded U.S. Treasury
securities, in the amount of $13.60 billion of average
balances pursuant to this temporary relief. See
"Subsidiaries" in this section for further discussion of
the impact of the final rule on State Street Bank.
implementing
from
final
rule
the
to
The SA-CCR final rule adopted in November
2019, which becomes effective on January 1, 2022,
also requires us to incorporate the SA-CCR into the
calculation of our total leverage exposure for the
purpose of calculating SLR.
On April 11, 2018,
the Federal Reserve
proposed modifications to the SLR that would replace
the current 2% SLR buffer applicable to us with an
SLR buffer equal to 50% of our applicable G-SIB
capital surcharge. The Federal Reserve has not
finalized these proposed modifications.
State Street Corporation | 12
Selected Recent Regulatory Developments Summary
Final Rule
Issued
Final Rule Effective
Date
Description
March 2020
October 1, 2020
September 2020 December 28, 2020
August 2020
January 1, 2021
October 2020
April 1, 2021
October 2020
July 1, 2021
November 2019 January 1, 2022
The U.S. Agencies issued the SCB final rule that replaced, under the
standardized approach, the capital conservation buffer of 2.5% with an
SCB calculated as the difference between the institution’s starting and
lowest projected CET1 ratio under the CCAR severely adverse scenario
plus planned common stock dividend payments (as a percentage of
RWA) from the fourth through seventh quarter of the CCAR planning
horizon. The SCB requirement can be no less than 2.5% of RWA. For
additional information about the SCB final rule, refer to "Stress Capital
Buffer" and “Capital Planning, Stress Tests and Dividends” in this
"Supervision and Regulation" section.
Following the launch of the MMLF program, which we participate in, the
Federal Reserve issued an interim final rule on March 19, 2020
(followed by a final rule on September 29, 2020), allowing Bank Holding
Companies (BHCs) to exclude assets purchased through the MMLF
program from their RWA, total leverage exposure and average total
consolidated assets. For the quarter ended December 31, 2020, we
deducted $4.2 billion of MMLF program average HTM securities.
In March 2020, the U.S. Agencies issued an interim final rule (followed
by a final rule in August 2020) that revised the definition of eligible
retained income for all U.S. banking organizations, including us. The
revised definition of eligible retained income makes any automatic
limitations on capital distributions that could apply to us under the
federal banking agencies’ capital or TLAC rules take effect on a more
gradual basis in the event that a banking organization’s capital, leverage
or TLAC ratios were to decline below regulatory requirements, including
applicable regulatory capital buffers.
The U.S. Agencies issued a final rule that will require us and State
Street Bank to make certain deductions from regulatory capital for
investments in certain unsecured debt instruments, including eligible
LTD under the TLAC rule, issued by us and other U.S. and foreign G-
SIBs.
In October 2020, the U.S. Agencies issued a final rule implementing the
Basel Committee on Banking Supervision's (BCBS) NSFR in the United
States, which will apply to us and State Street Bank. The final rule
requires large banking organizations to maintain an amount of available
stable funding, which is a weighted measure of a company’s funding
sources over a one-year
time horizon, calculated by applying
standardized weightings to the company’s equity and liabilities based on
their expected stability, that is no less than the amount of required stable
funding, which is calculated by applying standardized weightings to
assets, derivatives exposures and certain other items based on their
liquidity characteristics.
The U.S. Agencies issued a final rule that, among other things,
implements the standardized approach for counterparty credit risk (SA-
CCR), a new methodology for calculating the exposure amount for
derivative contracts under the U.S. regulatory capital rules. Under the
final rule, we will have the option to use the SA-CCR or the Internal
Model Methodology (IMM) to measure the exposure amount of our
cleared and uncleared derivative transactions under our advanced
approaches calculation. We will be required to determine the amount of
these exposures using the SA-CCR under our standardized approach
capital calculation. Due to the nature of our trading activities, the impact
of the final rule may have a greater proportional impact on our RWA than
on some of our G-SIB peers. In addition, under the final rule we will be
required to use a simplified formula to determine the RWA amount of our
central counterparty default fund contributions. The final rule also
requires us to incorporate the SA-CCR into the calculation of our total
leverage exposure for the purpose of calculating SLR.
State Street Corporation | 13
As a systemically important financial institution,
we are subject
to enhanced supervision and
prudential standards. Our status as a G-SIB has also
in heightened prudential and conduct
resulted
expectations of our U.S. and international regulators
with respect to our capital and liquidity management
and our compliance and risk oversight programs.
These heightened expectations have increased our
regulatory compliance costs, including personnel,
technology and systems, as well as significant
additional
to
regulatory compliance programs.
enhance our
Regulatory compliance requirements are anticipated
to remain at least at the elevated levels we have
experienced over the past several years.
implementation and
related costs
Failure to meet current and future regulatory
capital requirements could subject us to a variety of
enforcement actions, including the termination of
State Street Bank's deposit insurance by the FDIC,
and to certain restrictions on our business, including
those that are described above in this “Supervision
and Regulation” section.
Not all of our competitors have similarly been
designated as systemically important nor are all of
them subject to the same degree of regulation as a
bank or financial holding company, and therefore
some of our competitors may not be subject to the
same additional capital requirements.
For additional information about our regulatory
capital position and our regulatory capital adequacy,
as well as current and future regulatory capital
“Financial
requirements,
Condition" in our Management's Discussion and
Analysis, and Note 16 to the consolidated financial
statements in this Form 10-K.
"Capital"
refer
to
in
Total Loss-Absorbing Capacity
to
improve
intended
In 2016, the Federal Reserve released its final
rule on TLAC, LTD and clean holding company
requirements for U.S. domiciled G-SIBs, such as us.
the
The requirements are
resiliency and resolvability of certain U.S. banking
organizations
prudential
standards. The TLAC rule imposes: (1) external TLAC
requirements (i.e., combined eligible Tier 1 regulatory
capital and LTD);
(2) separate external LTD
requirements; and
(3) clean holding company
requirements that impose restrictions on certain types
of liabilities and limit non-TLAC related third party
liabilities to 5% of external TLAC.
enhanced
through
Among other things, the TLAC rule required us
to comply with minimum requirements for external
TLAC and external LTD effective January 1, 2019.
Specifically, as of January 2021, we must hold
(1) combined eligible Tier 1 regulatory
capital and LTD in the amount equal to the
total RWA (18.0%
greater of 21.5% of
minimum plus a 2.5% capital conservation
buffer plus a G-SIB surcharge calculated for
these purposes under Method 1 of 1.0% plus
any applicable counter-cyclical buffer, which
is currently 0%) and 9.5% of total leverage
exposure (7.5% minimum plus the enhanced
SLR buffer of 2.0%), as defined by the SLR
rule; and
(2) qualifying external LTD equal to the
greater of 7.0% of RWA (6.0% minimum plus
a G-SIB surcharge calculated
these
purposes under method 2 of 1.0%) and 4.5%
of total leverage exposure, as defined by the
SLR rule.
for
Liquidity Coverage Ratio and Net Stable Funding
Ratio
In addition to capital standards, the Basel III
liquidity
two quantitative
framework
standards: the LCR and the NSFR.
introduced
We are subject to the rule issued by the U.S.
Agencies implementing the BCBS LCR in the U.S.
The LCR is intended to promote the short-term
banking
resilience
of
organizations,
the banking
to
industry's ability to absorb shocks arising from market
stress over a 30 calendar day period and improve the
measurement and management of liquidity risk.
internationally
like us,
improve
active
The LCR measures an
institution’s HQLA
against its net cash outflows under a prescribed
stress environment. We report LCR to the Federal
Reserve daily and are required to calculate and
maintain an LCR that is equal to or greater than
In addition, we publicly disclose certain
100%.
qualitative and quantitative information about our LCR
consistent with the requirements of the Federal
Reserve's final rule.
Compliance with the LCR has required that we
maintain an investment portfolio that contains an
adequate amount of HQLA.
In general, HQLA
investments generate a lower investment return than
other types of investments, resulting in a negative
impact on our NII and our NIM. In addition, the level
of HQLA we are required to maintain under the LCR
is dependent upon our client relationships and the
nature of services we provide, which may change
over time. Deposits resulting from certain services
provided (“operational deposits”) are treated as more
resilient during periods of stress than other deposits.
As a result, if balances of operational deposits
increased relative to our total client deposit base, we
would expect to require less HQLA in order to
maintain our LCR. Conversely,
if balances of
operational deposits decreased relative to our total
client deposit base, we would expect to require more
HQLA. On May 5, 2020, the U.S. banking agencies
issued a rule that modifies the LCR rule to neutralize
the impact on LCR of the advances made by the
State Street Corporation | 14
MMLF (and Paycheck Protection Liquidity Facility)
and the exposures securing such advances.
calculated by applying
In October 2020, the U.S. Agencies issued a
final rule implementing the BCBS’s NSFR in the
United States. The final rule requires large banking
organizations to maintain an amount of available
stable funding, which is a weighted measure of a
company’s funding sources over a one-year time
horizon,
standardized
weightings to the company’s equity and liabilities
based on their expected stability, that is no less than
the amount of required stable funding, which is
calculated by applying standardized weightings to
assets, derivatives exposures and certain other items
based on their liquidity characteristics. As a U.S. G-
SIB, we will be required to maintain an NSFR that is
equal to or greater than 100%. The final rule will
become effective as of July 1, 2021. The final rule will
also require us to publicly disclose our quarterly
NSFR on a semiannual basis beginning in 2023.
Capital Planning, Stress Tests and Dividends
its own stress
Pursuant to the Dodd-Frank Act, the Federal
Reserve has adopted capital planning and stress test
requirements for large bank holding companies,
including us, which form part of the Federal Reserve’s
framework. The Federal Reserve
annual CCAR
conducts
tests of our business
operations using supervisory models, the results of
which it uses to calibrate our annual SCB, subject to
a minimum of 2.5%. In addition, under the Federal
Reserve’s capital plan rule, we must conduct periodic
stress testing of our business operations and submit
an annual capital plan to the Federal Reserve, taking
into account the results of separate stress tests
designed by us and by the Federal Reserve. The
Federal Reserve conducts a qualitative assessment
of our capital plan as part of the CCAR process to
evaluate
the strength of our capital planning
practices, including our ability to identify, measure,
and determine the appropriate amount of capital for
our risks, and controls and governance supporting
capital planning.
On March 4, 2020, the Federal Reserve issued
a final rule to integrate its annual capital planning and
stress testing requirements with certain ongoing
regulatory capital requirements. The final rule, which
applies to certain bank holding companies, including
us, introduced an SCB and related changes to the
capital planning and stress testing processes. The
SCB became effective on October 1, 2020.
In the standardized approach, the SCB replaced
the capital conservation buffer of 2.5%. The
standardized approach SCB equals the greater of (i)
2.5%; and (ii) the maximum decline in our CET1
capital ratio under the severely adverse scenario over
the supervisory stress test measurement period, plus
the ratio of (a) the sum of the dollar amount of our
planned common stock dividends for the fourth
through seventh quarters of the supervisory stress
test projection period to (b) our projected RWA for the
quarter in which our projected CET1 capital ratio
reaches its minimum in the supervisory stress test.
Regulatory
the
standardized approach
the SCB, as
summarized above, as well as our G-SIB capital
surcharge and any applicable countercyclical capital
buffer.
requirements
include
capital
under
The final rule made related changes to capital
planning and stress testing processes for bank
holding companies subject to the SCB requirement.
In particular, the final rule assumes that bank holding
companies maintain a constant level of assets and
RWA throughout the supervisory stress test projection
period. In addition, under the final rule the supervisory
stress test no longer assumes that bank holding
companies make all nine quarters of planned capital
distributions under stress, although
the SCB
incorporates the dollar amount of four quarters of
planned common stock dividends, as described
above.
The final rule did not change regulatory capital
requirements under the advanced approaches, the
Tier 1 leverage ratio or the SLR.
On June 25, 2020, we were notified by the
Federal Reserve of the results from the 2020 DFAST
stress test, including our preliminary SCB of 2.5%. On
August 10, 2020, the Federal Reserve announced
that our final SCB effective October 1, 2020 is 2.5%,
resulting in no change to our existing regulatory
capital requirements.
Although the final SCB rule changed the effect of
the CCAR process so that the SCB applied to our
baseline capital measures, rather than CCAR, is the
source of our stress-based capital requirements, we
continue to be subject to capital plan requirements
and the CCAR process. Under the capital planning
and CCAR requirements, our annual capital plan
must include a description of all of our planned capital
actions over a nine-quarter planning horizon,
including any capital qualifying instruments, any
capital distributions, such as payments of dividends
on, or repurchases of, our stock, and any similar
action that the Federal Reserve determines could
affect our consolidated capital. The capital plan must
include a discussion of how we will maintain capital
above the minimum regulatory capital ratios, including
the minimum ratios under the Basel III rule, and serve
as a source of strength to State Street Bank under
in our
supervisory stress scenarios. Changes
strategy, merger
or
unanticipated uses of capital could result in a change
in our capital plan and its associated capital actions,
including capital raises or modifications to planned
capital actions, such as repurchases of our stock, and
may require resubmission of the capital plan to the
Federal Reserve if, among other reasons, we would
not meet our regulatory capital requirements after
making the proposed capital distribution.
acquisition
activity
or
State Street Corporation | 15
In addition to its capital planning requirements,
the Federal Reserve has the authority to prohibit or to
limit the payment of dividends, the repurchase of
common stock, or other capital actions that reduce
capital by the banking organizations it supervises,
including the Parent Company and State Street Bank,
if, in the Federal Reserve’s opinion, the capital action
would constitute an unsafe or unsound practice in
light of
the banking
financial condition of
the
organization. All of
these policies and other
requirements could affect our ability to pay dividends
and repurchase our stock or require us to provide
capital assistance to State Street Bank and any other
banking subsidiary. Our common stock and other
stock dividends, including the declaration, timing and
amount thereof, remain subject to consideration and
approval by our Board of Directors at the relevant
times.
In connection with our 2019 capital plan, our
Board approved a common stock purchase program
authorizing the purchase of up to $2.0 billion of our
common stock from July 1, 2019 through June 30,
2020 (the 2019 Program). We repurchased a total of
$1.0 billion of our common stock in the third and
fourth quarters of 2019 under the 2019 Program and
a total of $500 million of our common stock in the first
quarter of 2020 under the 2019 Program. On March
16, 2020, we, along with the other U.S. G-SIBs,
repurchases and
suspended
maintained this suspension through the fourth quarter
of 2020 in response to the COVID-19 pandemic. This
suspension was consistent with limitations imposed
by the Federal Reserve beginning in the second
quarter of 2020.
common
share
in
for
inclusion
instrument eligible
On June 25, 2020,
the Federal Reserve
announced distribution limitations for CCAR banking
organizations, including us, during the third quarter of
2020. On September 30, 2020, the Federal Reserve
announced that it would extend the limitations for the
fourth quarter of 2020. The limitations prohibited us
from making any capital distribution (excluding any
capital distribution arising from the issuance of a
capital
the
numerator of a regulatory capital ratio), unless
otherwise approved by the Federal Reserve. During
the third and fourth quarters of 2020, CCAR banking
organizations were, however, authorized to make
share repurchases relating to issuances of common
stock related to employee stock ownership plans;
provided that the organization did not increase the
amount of its common stock dividends, to pay
common stock dividends that did not exceed an
amount equal to the average of the organization’s net
income for the four preceding calendar quarters,
unless otherwise specified by the Federal Reserve;
and to make scheduled payments on additional Tier 1
and Tier 2 capital instruments.
Due to the economic challenges created by the
COVID-19 pandemic, the Federal Reserve required
all participating CCAR banks to resubmit their capital
plans under updated scenarios that were released by
the Federal Reserve on September 17, 2020.
from
limitations
We resubmitted our 2020 Capital Plan and
received results
the Federal Reserve on
December 18, 2020. In addition to providing results,
the Federal Reserve also announced modifications to
the applicable distribution
for CCAR
banking organizations, including us, that would be in
effect for the first quarter of 2021. The modified
limitations continue to prohibit any capital distribution
(excluding any capital distribution arising from the
issuance of a capital instrument eligible for inclusion
in the numerator of a regulatory capital ratio), unless
otherwise approved by the Federal Reserve. During
the first quarter of 2021, CCAR banking organizations
that are U.S. bank holding companies, including us,
are, however, authorized to:
• pay common stock dividends and make share
repurchases that, in the aggregate, do not exceed an
amount equal to the average of the organization's net
income for the four preceding calendar quarters,
provided that the organization does not increase the
amount of its common stock dividends to be larger
than the level paid in the second quarter of 2020;
• make share repurchases that equal the
amount of share issuances related to expensed
employee compensation; and
• redeem and make scheduled payments on
additional Tier 1 and Tier 2 capital instruments.
The modified restrictions allow us to resume
common share repurchases in the first quarter of
2021, and in January 2021 our Board approved a first
quarter 2021 repurchase program for the purchase of
up to $475 million of our common stock through
March 31, 2021.
trading programs. The
When permitted, stock purchases may be made
using various types of mechanisms, including open
market purchases, accelerated share repurchases or
transactions off market, and may be made under Rule
10b5-1
timing of stock
purchases, types of transactions and number of
shares purchased will depend on several factors,
including market conditions and State Street’s capital
positions,
investment
financial performance and
opportunities. Our common stock purchase programs
do not have specific price targets and may be
suspended at any time. We may employ third-party
broker/dealers to acquire shares on the open market
in connection with our common stock purchase
programs. The common stock purchase program
does not have specific price targets and may be
suspended at any time.
The Federal Reserve, under the Dodd-Frank
Act, previously required us to conduct semi-annual
State Street-run stress tests and to publicly disclose
the summary results of our State Street-run stress
State Street Corporation | 16
required
requirements,
tests under the severely adverse economic scenario.
We are also
to undergo an annual
supervisory stress test conducted by the Federal
Reserve. The EGRRCPA modifies certain aspects of
these stress-testing
the
the Federal Reserve’s
number of scenarios
supervisory stress
two and
to
modifying our obligation to perform company-run
stress-tests from semi-annually to annually. The
Federal Reserve adopted a final rule in October 2019
that, among other
this
modification.
implemented
reducing
things,
three
from
test
in
The Volcker Rule
We are subject
the Volcker Rule and
to
implementing regulations. The Volcker Rule prohibits
banking entities, including us and our affiliates, from
engaging in certain prohibited proprietary trading
activities, as defined in the Volcker Rule regulations,
subject to exemptions for market-making related
activities, risk-mitigating hedging, underwriting and
certain other activities. The Volcker Rule also requires
banking entities to either restructure or divest certain
ownership
relationships with,
in, and
covered funds (as such terms are defined in the
Volcker Rule regulations).
interests
regulations as currently
The Volcker Rule regulations require banking
entities to establish extensive programs designed to
promote compliance with the restrictions of the
Volcker Rule. We have established a compliance
program which we believe complies with the Volcker
Rule
in effect. Our
compliance program restricts our ability in the future
to service certain types of funds, in particular covered
funds for which State Street Global Advisors acts as
an advisor and certain types of trustee relationships.
Consequently, Volcker Rule compliance entails both
the cost of a compliance program and loss of certain
revenue and future opportunities.
federal
financial
regulatory
those regulations. The changes
In October 2019, the Federal Reserve and the
agencies
other
responsible for the Volcker Rule regulations adopted
an interagency final rule that revised certain elements
of
focused on
proprietary trading, including the metrics reporting
requirements and certain requirements imposed in
connection with
permitted market making,
underwriting and risk-mitigating hedging activities,
including market-making
in and underwriting of
covered funds. These revisions became effective on
January 1, 2020, with compliance required by
January 1, 2021. The agencies responsible for the
Volcker Rule
regulations adopted a separate
interagency final rule in June 2020 focused on the
covered funds provisions which generally prohibit any
banking entity
retaining an
from acquiring or
ownership interest in, sponsoring, or having certain
relationships with, a hedge fund or private equity
fund. These revisions became effective on October 1,
2020. These revisions do not have a material impact
on us.
Enhanced Prudential Standards
The Dodd-Frank Act, as amended by
the
EGRRCPA, establishes a systemic risk regime to
which large bank holding companies with $100 billion
or more in consolidated assets, such as us, are
subject. The Federal Reserve is required to tailor the
application of the enhanced prudential standards to
bank holding companies based on
their size,
complexity, risk profile and other factors. U.S. G-SIBs,
such as us, are expected to remain subject to the
most stringent requirements, including heightened
capital,
liquidity and risk management
requirements and single-counterparty credit limits
(SCCL).
leverage,
can
recommend
The FSOC
prudential
standards, reporting and disclosure requirements for
SIFIs to the Federal Reserve, and must approve any
finding by the Federal Reserve that a financial
institution poses a grave threat to financial stability
and must undertake mitigating actions. The FSOC is
also empowered to designate systemically important
payment, clearing and settlement activities of
financial institutions, subjecting them to prudential
supervision and regulation, and, assisted by the
Office of Financial Research within
the U.S.
Department of the Treasury, can gather data and
reports from financial institutions, including us.
Under
various
comply with
liquidity-related
the Federal Reserve's enhanced
prudential standards regulation under the Dodd-Frank
Act, as amended by the EGRRCPA, we are required
to
risk
management standards and maintain a liquidity buffer
of unencumbered highly liquid assets based on the
results of internal liquidity stress testing. This liquidity
buffer is in addition to other liquidity requirements,
such as the LCR and, when effective, the NSFR. The
regulations
and
establish
responsibilities for our risk committee and mandate
risk management standards.
requirements
also
for
that established SCCL
On June 14, 2018, the Federal Reserve finalized
rules
large banking
organizations. U.S. G-SIBs, including us, are subject
to a limit of 15% of Tier 1 capital for aggregate net
credit exposures to any “major counterparty” (defined
to include other U.S. G-SIBs, foreign G-SIBs and
non-bank systemically important financial institutions
supervised by the Federal Reserve). In addition, we
are subject to a limit of 25% of Tier 1 capital for
to any other
aggregate net credit exposures
unaffiliated counterparty. The
rules
became effective for us on January 1, 2020.
final SCCL
The Federal Reserve has established a rule that
imposes
certain
“qualified financial contracts” to which U.S. G-SIBs,
including us, and their subsidiaries are parties. Under
requirements on
contractual
State Street Corporation | 17
II of
the Dodd-Frank Act and
the rule, certain qualified financial contracts generally
must expressly provide that transfer restrictions and
default rights against a U.S. G-SIB, or subsidiary of a
U.S. G-SIB, are limited to the same extent as they
would be under the Federal Deposit Insurance Act
and Title
their
implementing regulations. In addition, certain qualified
financial contracts may not, among other things,
permit the exercise of any cross-default right against
a U.S. G-SIB or subsidiary of a U.S. G-SIB based on
an affiliate’s entry into insolvency, resolution or similar
proceedings, subject to certain creditor protections.
There is a phased-in compliance schedule based on
counterparty type, and the first compliance date was
January 1, 2019.
The systemic-risk regime also provides that for
U.S. G-SIBs deemed to pose a grave threat to U.S.
financial stability, the Federal Reserve, upon an
FSOC vote, must limit that institution’s ability to
merge, restrict its ability to offer financial products,
require it to terminate activities, impose conditions on
activities or, as a last resort, require it to dispose of
assets. Upon a grave threat determination by the
FSOC, the Federal Reserve must issue rules that
require financial institutions subject to the systemic-
risk regime to maintain a debt-to-equity ratio of no
more than 15 to 1 if the FSOC considers it necessary
to mitigate the risk of the grave threat. The Federal
Reserve also has the ability to establish further
standards,
regarding contingent
those
capital, enhanced public disclosures and limits on
short-term
sheet
including
exposures.
off-balance
including
debt,
Recovery and Resolution Planning
We are required to periodically submit a plan for
rapid and orderly resolution in the event of material
financial distress or failure, commonly referred to as a
resolution plan or a living will, to the Federal Reserve
and the FDIC under Section 165(d) of the Dodd-
Frank Act. Through resolution planning, we seek, in
the event of our insolvency, to maintain State Street
Bank’s role as a key infrastructure provider within the
financial system, while minimizing risk to the financial
system and maximizing value for the benefit of our
stakeholders. We have and will continue to focus
management attention and
to meet
regulatory expectations with respect to resolution
planning.
resources
We submitted our updated 2019 165(d)
resolution plan describing our preferred resolution
strategy to the Federal Reserve and FDIC (the
Agencies) before July 1, 2019, and our resolution
is materially consistent with our prior
strategy
resolution strategy. In reviewing the 2019 plan, the
Agencies noted meaningful improvements over prior
plan submissions. The Agencies did not identify any
deficiencies in the 2019 plan, but did identify one
implementation of
shortcoming
related
the
to
to
governance mechanisms. We submitted
the
Agencies our plan to remediate this shortcoming in
line with the expected timeframe. In addition to the
above letter, the Federal Reserve and FDIC jointly
issued a final rule that was published in the Federal
Register on November 1, 2019. This final rule revised
the implementation requirements under the Dodd-
Frank Act's resolution planning provisions by means
of establishing a biennial filing cycle for the U.S. G-
SIBs, including State Street. This cycle alternates
between a targeted resolution plan, followed two
years later by a full resolution plan. The Agencies
have published the scope for the upcoming targeted
resolution plan to include the core elements of
resolution planning and some specific firm level
information, including impacts from the COVID-19
pandemic. The next resolution plan is due on July 1,
2021.
In the event of material financial distress or
failure, our preferred resolution strategy is the SPOE
Strategy. The SPOE Strategy provides that prior to
the bankruptcy of the Parent Company and pursuant
to a support agreement among the Parent Company,
SSIF (a direct subsidiary of the Parent Company), our
Beneficiary Entities (as defined below) and certain of
our other entities, SSIF is obligated, up to its available
resources, to recapitalize and/or provide liquidity to
State Street Bank and the other entities benefiting
from such capital and/or liquidity support (collectively
with State Street Bank, “Beneficiary Entities”), in
amounts designed to prevent the Beneficiary Entities
from themselves entering into resolution proceedings.
Following the recapitalization of, or provision of
liquidity
the Parent
the Beneficiary Entities,
Company would enter into a bankruptcy proceeding
under the U.S. Bankruptcy Code. The Beneficiary
Entities and our other subsidiaries would be
transferred to a newly organized holding company
held by a reorganization trust for the benefit of the
Parent Company’s claimants.
to
Under
the Parent
the support agreement,
Company pre-funded SSIF by contributing certain of
its assets (primarily its liquid assets, cash deposits,
investments in intercompany debt, investments in
marketable securities and other cash and non-cash
equivalent investments) to SSIF at the time it entered
into the support agreement and will continue to
contribute such assets, to the extent available, on an
these
ongoing
contributions, SSIF has agreed
the support
agreement to provide capital and liquidity support to
the Parent Company and all of the Beneficiary
Entities in accordance with the Parent Company’s
capital and liquidity policies. Under the support
agreement, the Parent Company is only permitted to
retain cash needed to meet its upcoming obligations
and to fund expected expenses during a potential
bankruptcy proceeding. SSIF has provided the Parent
consideration
in
basis.
for
In
State Street Corporation | 18
to continue
Company with a committed credit line and issued
(and may issue) one or more promissory notes to the
Parent Company (the "Parent Company Funding
Notes") that together are intended to allow the Parent
Company
its obligations
throughout the period prior to the occurrence of a
"Recapitalization Event" (as defined below). The
to
support agreement does not obligate SSIF
maintain any specific level of resources and SSIF
may not have sufficient resources to implement the
SPOE Strategy.
to meet
for capital contributed
In the event a Recapitalization Event occurs, the
obligations outstanding under the Parent Company
Funding Notes would automatically convert into or be
exchanged
to SSIF. The
obligations of the Parent Company and SSIF under
the support agreement are secured through a security
agreement that grants a lien on the assets that the
Parent Company and SSIF would use to fulfill their
obligations under the support agreement to the
Beneficiary Entities. SSIF is a distinct legal entity
separate from the Parent Company and the Parent
Company’s other affiliates.
In
Upon
the event
In accordance with our policies, we are required
to monitor, on an ongoing basis, the capital and
liquidity needs of State Street Bank and our other
Beneficiary Entities. To support this process, we have
established a trigger framework that identifies key
actions that would need to be taken or decisions that
would need to be made if certain events tied to our
financial condition occur.
that we
experience material financial distress, the support
agreement requires us to model and calculate certain
capital and liquidity triggers on a regular basis to
determine whether or not the Parent Company should
commence preparations for a bankruptcy filing and
whether or not a Recapitalization Event has occurred.
the occurrence of a Recapitalization
Event: (1) SSIF would not be authorized to provide
any further liquidity to the Parent Company; (2) the
Parent Company would be required to contribute to
SSIF any remaining assets it is required to contribute
to SSIF under
(which
specifically exclude amounts designated to fund
expected expenses during a potential bankruptcy
proceeding); (3) SSIF would be required to provide
capital and liquidity support to the Beneficiary Entities
to support such entities’ continued operation to the
extent of its available resources and consistent with
the support agreement; and (4) the Parent Company
would be expected
to commence Chapter 11
proceedings under the U.S. Bankruptcy Code. No
person or entity, other than a party to the support
agreement, should rely on any of our affiliates being
or remaining a Beneficiary Entity or receiving capital
or
the support
agreement, including in evaluating any of our entities
from a creditor's perspective or determining whether
liquidity support pursuant
the support agreement
to
to enter into a contractual relationship with any of our
entities.
for
orderly
A “Recapitalization Event” is defined under the
support agreement as the earlier occurrence of: (1)
one or more capital and liquidity thresholds being
breached or (2) the authorization by the Parent
Company's Board of Directors
the Parent
Company to commence bankruptcy proceedings. The
thresholds are set at levels intended to provide for the
availability of sufficient capital and liquidity to enable
an
extraordinary
resolution without
government support. The SPOE Strategy and the
obligations under the support agreement may result
in the recapitalization of State Street Bank and the
commencement of bankruptcy proceedings by the
Parent Company at an earlier stage of financial stress
than might otherwise occur without such mechanisms
in place. An expected effect of the SPOE Strategy
and applicable TLAC regulatory requirements is that
our losses will be imposed on the Parent Company
shareholders and the holders of long-term debt and
other forms of TLAC securities currently outstanding
or issued in the future by the Parent Company, as
well as on any other Parent Company creditors,
before any of our losses are imposed on the holders
of the debt securities of the Parent Company's
operating subsidiaries or any of their depositors or
creditors, or before U.S. taxpayers are put at risk.
its
to as an
failure, referred
State Street Bank is also required to submit
periodically to the FDIC a plan for resolution in the
event of
Insured
Depository Institution plan. In November 2018, the
FDIC announced that until the FDIC completed
revisions to its IDI plan requirements, no IDI plans
would be required to be filed. In January 2021, the
FDIC lifted the moratorium on IDI plan filings for IDIs
with $100 billion or more in assets, including State
Street Bank. In lifting the moratorium, the FDIC stated
that it will provide at least 12 months’ advance notice
prior to requiring submission of an institution’s next
IDI plan.
Additionally, we are required
to submit a
recovery plan for State Street to the Federal Reserve.
This plan includes detailed governance triggers and
contingency actions that can be implemented in a
timely manner in the event of extreme financial
distress in those entities.
Orderly Liquidation Authority
Under the Dodd-Frank Act, certain financial
companies, including bank holding companies such
the Parent Company, and certain covered
as
subsidiaries, can be subjected
the orderly
liquidation authority which went into effect in 2010.
For the FDIC to be appointed as our receiver, two-
thirds of the FDIC Board and two-thirds of the Federal
Reserve Board must recommend appointment, and
the U.S. Treasury Secretary, in consultation with the
U.S. President, must then make certain extraordinary
to
State Street Corporation | 19
financial distress and systemic risk determinations.
Absent such actions, we, as a bank holding company,
would remain subject to the U.S. Bankruptcy Code.
regulators, including the Federal Reserve, have also
issued rules with respect to margin requirements for
uncleared derivatives transactions.
The orderly liquidation authority went into effect
in 2010, and rulemaking is proceeding incrementally,
with some regulations now finalized and others
planned but not yet proposed. If the FDIC were
appointed as the receiver of the Parent Company
pursuant to the orderly liquidation authority, the FDIC
would have considerable powers to resolve the
Parent Company, including: (1) the power to remove
officers and directors responsible for the Parent
Company's failure and to appoint new directors and
officers; (2) the power to assign assets and liabilities
to a third party or bridge financial company without
the need for creditor consent or prior court review; (3)
the ability to differentiate among similarly situated
creditors, subject to a minimum recovery right to
receive at least what they would have received in
bankruptcy liquidation; and (4) broad powers to
administer
to determine
distributions from the assets of the receivership to
creditors not transferred to a third party or bridge
financial institution.
the claims process
In 2013, the FDIC released its proposed SPOE
strategy for resolution of a SIFI under the orderly
liquidation authority. The FDIC’s release outlines how
it would use its powers under the orderly liquidation
authority to resolve a SIFI by placing its top-tier U.S.
holding company in receivership and keeping its
operating subsidiaries open and out of insolvency
proceedings by transferring the operating subsidiaries
to a new bridge holding company, recapitalizing the
operating subsidiaries and imposing losses on the
shareholders and creditors of the holding company in
receivership according to their statutory order of
priority.
Derivatives
including
requirements
Title VII of the Dodd-Frank Act imposed a
comprehensive regulatory structure on the OTC
derivatives market,
for
clearing, exchange trading, capital, margin, reporting
and record-keeping. Title VII also requires certain
persons to register as a major swap participant, a
swap dealer or a securities-based swap dealer. The
CFTC, the SEC, and other U.S. regulators have
largely implemented key provisions of Title VII,
although certain final regulations have only been in
place a short period of time and others have not been
finalized. Through this rulemaking process, these
regulators collectively have adopted or proposed,
among other things, regulations relating to reporting
and record-keeping obligations, margin and capital
requirements, the scope of registration and the
central clearing and exchange trading requirements
for certain OTC derivatives. The CFTC has also
issued rules to enhance the oversight of clearing and
trading entities. The CFTC, along with other
State Street Bank has registered provisionally
with the CFTC as a swap dealer. As a provisionally
registered swap dealer, State Street Bank is subject
to significant regulatory obligations regarding its swap
the supervision, examination and
activity and
enforcement powers of
the CFTC and other
regulators. The CFTC has granted State Street Bank
a limited-purpose swap dealer designation. Under this
rate swap
limited-purpose designation,
activity engaged in by State Street Bank’s Global
Treasury group is not subject to certain of the swap
regulatory
to
swaps entered into by a registered swap dealer,
subject to a number of conditions. For all other swap
transactions, our swap activities remain subject to all
applicable swap dealer regulations.
requirements otherwise applicable
interest
Subsidiaries
The Federal Reserve is the primary federal
banking agency responsible for regulating us and our
subsidiaries, including State Street Bank, with respect
to both our U.S. and non-U.S. operations. Our
banking subsidiaries are subject to supervision and
examination by various regulatory authorities and
have regulatory requirements that may differ from
State Street Corporation.
State Street Bank
State Street Bank is a member of the Federal
Reserve System, its deposits are insured by the FDIC
and it is subject to applicable federal and state
banking laws and to supervision and examination by
the Federal Reserve, as well as by
the
Massachusetts Commissioner of Banks, the FDIC,
and the regulatory authorities of those states and
countries in which State Street Bank operates a
branch.
As with the Parent Company, State Street Bank
is considered an advanced approaches banking
organization subject to the Basel III framework in the
U.S. and is also subject to the market risk capital rule
jointly issued by U.S. Agencies to implement the
changes to the market risk capital framework in the
U.S. As required by the Dodd-Frank Act, State Street
Bank, as an advanced approaches banking
organization, is subject to a "capital floor," also
the
to as
referred
assessment of
regulatory capital adequacy,
including
the capital conservation buffer and
countercyclical capital buffer described above in this
"Supervision and Regulation" section.
the Collins Amendment,
its
in
Under the Basel III rule, State Street Bank's
regulatory capital calculations, including any additions
or deductions from capital for regulatory purposes,
are consistent with the calculations of the Parent
Company.
State Street Corporation | 20
Similar to our Parent Company, State Street
Bank is subject to the Tier 1 leverage ratio and the
supplementary leverage ratio. However, as State
Street Bank is the insured depository institution
subsidiary of one of the eight US G-SIBs, it is
required to maintain a minimum Tier 1 leverage ratio
of 5% and a minimum SLR of 6% to be considered
well-capitalized.
rule adopted by
the U.S. Agencies
Furthermore, for the purposes of calculating the
SLR ratio, State Street Bank is similarly subject to a
final
that
establishes a deduction for central bank deposits
from a custodial banking organization’s total leverage
exposure. For the quarter ended December 31, 2020,
State Street Bank excluded $76.7 billion of average
balances held on deposit at central banks from the
denominator used in the calculation of our SLR based
on this custodial banking exclusion. In addition, State
Street Bank is temporarily permitted, until March 31,
2021, to elect to exclude U.S. Treasury securities
from the calculation of the SLR denominator, provided
that, in order to make such an election, it must
request regulatory approval before making capital
distributions, including paying dividends to its parent
company, as long as the exclusion is in effect. State
Street Bank elected not to take this temporary
exclusion and accordingly did not exclude U.S.
Treasury securities from the calculation of the SLR
denominator.
Pursuant to the BCBS NSFR final rule, as a
subsidiary of a U.S. G-SIB, State Street Bank will be
similarly required to maintain an NSFR that is equal
to or greater than 100%.
those of our subsidiaries, on
We and our subsidiaries that are not subsidiaries
of State Street Bank are affiliates of State Street Bank
under federal banking laws, which impose restrictions
on various types of transactions, including loans,
extensions of credit, investments or asset purchases
by or from State Street Bank, on the one hand, to us
and
the other.
Transactions of this kind between State Street Bank
and its affiliates generally are limited with respect to
each affiliate to 10% of State Street Bank’s capital
and surplus, as defined by the aforementioned
banking laws, are limited in the aggregate for all
affiliates to 20% of State Street Bank's capital and
surplus, and in some cases are also subject to strict
securities
collateral
requirements. Derivatives,
borrowing and securities
transactions
between State Street Bank and its affiliates became
subject to these restrictions pursuant to the Dodd-
Frank Act. The Dodd-Frank Act also expanded the
scope of transactions required to be collateralized. In
addition, the Volcker Rule generally prohibits similar
transactions between the Parent Company or any of
its affiliates and covered funds for which we or any of
our affiliates serve as the investment manager,
investment adviser, commodity trading advisor or
sponsor and other covered funds organized and
lending
that
requires
law also
offered pursuant to specific exemptions in the Volcker
Rule regulations.
Federal
certain
transactions by a bank with affiliates be on terms and
under circumstances, including credit standards, that
are substantially the same, or at least as favorable to
the bank, as
for
those prevailing at
comparable transactions involving other non-affiliated
companies. Alternatively,
the absence of
comparable transactions, the transactions must be on
terms and under circumstances, including credit
standards, that in good faith would be offered to, or
would apply to, non-affiliated companies.
time
the
in
is also prohibited
State Street Bank
from
engaging in certain tie-in arrangements in connection
with any extension of credit or lease or sale of
property or
law
provides for a depositor preference on amounts
realized from the liquidation or other resolution of any
depository institution insured by the FDIC.
furnishing of services. Federal
Other Subsidiaries
Our other subsidiary trust companies are subject
to supervision and examination by the OCC, the
Federal Reserve or by the appropriate state banking
regulatory authorities of the states in which they are
organized and operate. Our non-U.S. banking
subsidiaries are subject
the
regulatory authorities of the countries in which they
operate.
regulation by
to
to
Our subsidiaries, State Street Global Advisors
FM and State Street Global Advisors Ltd., act as
investment companies
investment advisers
registered under the Investment Company Act of
1940. State Street Global Advisors FM, incorporated
in Massachusetts in 2001 and headquartered in
Boston, Massachusetts, is registered with the SEC as
an investment adviser under the Investment Advisers
Act of 1940 and is registered with the CFTC as a
commodity trading adviser and pool operator. State
Street Global Advisors Ltd., incorporated in 1990 as a
U.K. limited company and domiciled in the U.K., is
also registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940.
State Street Global Advisors Ltd. is also authorized
and regulated by the United Kingdom Financial
Conduct Authority (U.K. FCA) and is an investment
firm under the Markets in Financial Instruments
Directive. Our subsidiary, State Street Global
Advisors Asia Limited, a Hong Kong incorporated
company, is registered as an investment adviser with
the SEC and additionally is licensed by the Securities
and Futures Commission of Hong Kong to perform a
variety of activities, including asset management.
State Street Global Advisors Asia Limited also holds
permits as a qualified foreign institutional Investor
(QFII) and a renminbi qualified foreign institutional
the Securities
investor
Regulatory Commission in the People’s Republic of
(RQFII), approved by
State Street Corporation | 21
China, and in Korea is registered with the Financial
Services Commission as a cross-border investment
advisory company and a cross-border discretionary
investment management company. In addition, a
major portion of our
investment management
activities are conducted by State Street Global
Advisors Trust Company, which is a subsidiary of
State Street Bank and a Massachusetts chartered
limited purpose
the
supervision of the Massachusetts Commissioner of
Banks and the Federal Reserve with respect to these
activities.
trust company subject
to
intended
laws and
to benefit
Many aspects of our investment management
activities are subject to federal and state laws and
regulations primarily
the
investment holder, rather than our shareholders.
These
regulations generally grant
supervisory agencies and bodies broad administrative
powers, including the power to limit or restrict us from
conducting our investment management activities in
the event that we fail to comply with such laws and
regulations, and examination authority. Our business
related to investment management and trusteeship of
collective trust funds and separate accounts offered
to employee benefit plans is subject to the Employee
Retirement Income Security Act (ERISA), and is
regulated by the U.S. DOL.
the Financial
limited purpose broker/dealer
We have three subsidiaries that operate as a
U.S. broker/dealer and are registered as such with
the SEC, are subject to regulation by the SEC
the SEC's net capital rule) and are
(including
members of
Industry Regulatory
Authority, a self-regulatory organization. State Street
Global Advisors Funds Distributors, LLC operates as
a
that provides
distributing and related marketing activities for U.S.
mutual funds and ETFs associated with State Street
Global Advisors. State Street Global Advisors Funds
Distributors, LLC also may privately offer certain
State Street Global Advisors advised funds. State
Street Global Markets, LLC is a U.S. broker/dealer
that provides agency execution services. We also
acquired Charles River Brokerage, LLC, a U.S.
broker/dealer, as part of our acquisition of CRD. In
addition, we have a subsidiary, SwapEX, LLC,
registered with the CFTC in the U.S. as a swap
execution facility.
including our
Our businesses,
investment
management and securities businesses, are also
regulated extensively by non-U.S. governments,
securities exchanges, self-regulatory organizations,
central banks and regulatory bodies, especially in
those jurisdictions in which we maintain an office. For
instance, among others, the U.K. FCA and the United
Kingdom Prudential Regulation Authority regulate our
activities in the U.K.; the Central Bank of Ireland
regulates our activities in Ireland; the German Federal
regulates our
Financial Supervisory Authority
in Germany;
activities
the Commission de
Surveillance du Secteur Financier regulates our
activities in Luxembourg; our German banking group
is also subject to direct supervision by the European
Central Bank under the ECB Single Supervisory
Mechanism; the Securities and Futures Commission
regulates our asset management activities in Hong
Kong; the Australian Prudential Regulation Authority
and
Investments
Commission regulate our activities in Australia; and
the Financial Services Agency and the Bank of Japan
regulate our activities in Japan. We have established
policies, procedures and systems designed to comply
with
these organizations.
However, as a global financial services institution, we
face complexity, costs and risks related to regulation.
the Australian Securities and
requirements of
the
The majority of our non-U.S. asset servicing
operations are conducted pursuant to the Federal
Reserve's Regulation K through State Street Bank’s
Edge Act subsidiary or through international branches
of State Street Bank. An Edge Act corporation is a
corporation organized under federal law that conducts
foreign business activities. In general, banks may not
make investments in their Edge Act corporations (and
similar state law corporations) that exceed 20% of
their capital and surplus, as defined in the relevant
banking regulations, and the investment of any
amount in excess of 10% of capital and surplus
requires the prior approval of the Federal Reserve.
In addition to our non-U.S. operations conducted
pursuant
to Regulation K, we also make new
investments abroad directly (through us or through
our non-banking subsidiaries) pursuant to the Federal
Reserve's Regulation Y, or through international bank
branch expansion, neither of which is subject to the
investment
to Edge Act
subsidiaries.
limitations applicable
Additionally, Massachusetts has its own bank
holding company statute, under which we, among
other things, may be required to obtain prior approval
by the Massachusetts Board of Bank Incorporation for
an acquisition of more than 5% of any additional
bank's voting shares, or for other forms of bank
acquisitions.
Anti-Money
Transparency
Laundering
and
Financial
financial
We and certain of our subsidiaries are subject to
the Bank Secrecy Act of 1970, as amended by the
USA PATRIOT Act of 2001, and related regulations,
which contain AML and
transparency
provisions and which require implementation of an
AML compliance program, including processes for
verifying client identification and monitoring client
transactions and detecting and reporting suspicious
activities. AML laws outside the U.S. contain similar
requirements. We have
implemented policies,
procedures and internal controls that are designed to
State Street Corporation | 22
financial
promote compliance with applicable AML laws and
regulations. AML laws and regulations applicable to
our operations may be more stringent than similar
to our non-regulated
requirements applicable
competitors or
institutions principally
operating in other jurisdictions. Compliance with
applicable AML and related requirements
is a
common area of review for financial regulators, and
any failure by us to comply with these requirements
could result in fines, penalties, lawsuits, regulatory
sanctions, difficulties
in obtaining governmental
approvals, restrictions on our business activities or
harm to our reputation.
Deposit Insurance
insured depository
the
The Dodd-Frank Act made permanent
general $250,000 deposit insurance limit for insured
deposits. The FDIC’s Deposit Insurance Fund (DIF) is
funded by assessments on FDIC-insured depository
institutions. The FDIC assesses DIF premiums based
institution's average
on an
consolidated total assets, less the average tangible
equity of the insured depository institution during the
assessment period. For larger institutions, such as
State Street Bank, assessments are determined
based on regulatory ratings and forward-looking
financial measures to calculate the assessment rate,
which is subject to adjustments by the FDIC, and the
assessment base.
that certain
The FDIC is required to determine whether and
to what extent adjustments to the assessment base
are appropriate for “custody banks" that satisfy
specified institutional eligibility criteria. The FDIC has
concluded
liquid assets could be
excluded from the deposit insurance assessment
base of custody banks. This has the effect of reducing
the amount of DIF insurance premiums due from
custody banks. State Street Bank qualifies as a
custody bank for this purpose. The custody bank
total
assessment adjustment may not exceed
the
identified by
transaction account deposits
institution as being directly linked to a fiduciary or
custody and safekeeping asset.
Prompt Corrective Action
The FDIC Improvement Act of 1991 requires the
appropriate federal banking regulator to take “prompt
corrective action” with respect
to a depository
institution if that institution does not meet certain
including minimum
capital adequacy standards,
capital ratios. While these regulations apply only to
banks, such as State Street Bank, the Federal
Reserve is authorized to take appropriate action
against a parent bank holding company, such as our
Parent Company, based on the under-capitalized
status of any banking subsidiary. In certain instances,
we would be required to guarantee the performance
of a capital restoration plan if one of our banking
subsidiaries were undercapitalized.
Support of Subsidiary Banks
to act as a source of
Under Federal Reserve regulations, a bank
holding company such as our Parent Company is
financial and
required
managerial strength to its banking subsidiaries. This
requirement was added to the Federal Deposit
Insurance Act by the Dodd-Frank Act. This means
to commit
that we have a statutory obligation
resources to State Street Bank and any other banking
subsidiary in circumstances in which we otherwise
might not do so absent such a requirement. In the
event of bankruptcy, any commitment by us to a
federal bank regulatory agency to maintain the capital
of a banking subsidiary will be assumed by the
bankruptcy trustee and will be entitled to a priority
payment.
Insolvency of an
Depository Institution
Insured U.S. Subsidiary
the
terms of
If the FDIC is appointed the conservator or
receiver of an FDIC-insured U.S. subsidiary
depository institution, such as State Street Bank,
upon its insolvency or certain other events, the FDIC
has the ability to transfer any of the depository
institution’s assets and liabilities to a new obligor
without the approval of the depository institution’s
creditors, enforce
the depository
institution’s contracts pursuant to their terms or
repudiate or disaffirm contracts or leases to which the
depository institution is a party. Additionally, the
claims of holders of deposit liabilities and certain
claims for administrative expenses against an insured
depository institution would be afforded priority over
other general unsecured claims against such an
institution, including claims of debt holders of the
institution
interpretation,
depositors in non-U.S. branches and offices, in the
liquidation or other resolution of such an institution by
any receiver. As a result, such persons would be
treated differently from and could receive, if anything,
substantially less than the depositors in U.S. offices
of the depository institution.
current
under
and,
Cyber Risk Management
cyber
regarding
enhanced
In October 2016, the Federal Reserve, FDIC
and OCC issued an advance notice of proposed
rulemaking
risk
management standards, which would apply to a wide
range of large financial institutions and their third-
party service providers, including us and our banking
subsidiaries. The proposed standards would expand
existing cyber-security regulations and guidance to
focus on cyber risk governance and management;
management of internal and external dependencies;
resilience and
and
response, cyber
situational awareness.
the proposal
contemplates more stringent standards for institutions
with systems that are critical to the financial sector.
Although the FDIC and OCC in 2019 each withdrew
In addition,
incident
State Street Corporation | 23
the advance notice of proposed rulemaking, the
Federal Reserve has not withdrawn the advance
notice and may still propose such a rule.
risk
Further discussion of cyber-security
management is provided in "Information Technology
Risk Management" included in our Management's
Discussion and Analysis in this Form 10-K.
ECONOMIC CONDITIONS AND GOVERNMENT
POLICIES
in reserve requirements
Economic policies of the U.S. government and
its agencies influence our operating environment.
Monetary policy conducted by the Federal Reserve
directly affects the level of interest rates, which may
affect overall credit conditions of
the economy.
Monetary policy is applied by the Federal Reserve
through open market operations in U.S. government
securities, changes
for
depository institutions, and changes in the discount
rate and availability of borrowing from the Federal
Reserve. Government regulation of banks and bank
holding companies is intended primarily for the
protection of depositors of the banks, rather than for
the shareholders of the institutions and therefore may,
in some cases, be adverse to the interests of those
shareholders. We are similarly affected by
the
economic policies of non-U.S. government agencies,
such as the ECB.
STATISTICAL DISCLOSURE BY BANK HOLDING
COMPANIES
The following information included under Items
6, 7 and 8 in this Form 10-K, is incorporated by
reference herein:
“Selected Financial Data”
table (Item 6) -
presents return on average common equity, return on
average assets, common dividend payout and equity-
to-assets ratios.
“Distribution of Average Assets, Liabilities and
Shareholders’ Equity; Interest Rates and Interest
Differential” table (Item 8) - presents consolidated
average balance sheet amounts, related fully taxable-
equivalent interest earned and paid, related average
yields and rates paid and changes in fully taxable-
equivalent interest income and interest expense for
each major category of interest-earning assets and
interest-bearing liabilities.
“Investment Securities” section included in our
Management's Discussion and Analysis (Item 7) and
Note 3, “Investment Securities,” to the consolidated
financial statements (Item 8) - disclose information
regarding book values, market values, maturities and
weighted-average yields of securities (by category).
“Loans and Leases” section included in our
Management’s Discussion and Analysis (Item 7) and
Note 4,
financial
statements (Item 8) - disclose our policy for placing
leases on non-accrual status and
loans and
the consolidated
“Loans,”
to
distribution of loans, loan maturities and sensitivities
of loans to changes in interest rates.
“Loans and Leases” and
“Cross-Border
Outstandings” sections of Management’s Discussion
and Analysis (Item 7) - disclose information regarding
our cross-border outstandings and other
loan
concentrations.
to
“Loans,”
the consolidated
“Credit Risk Management” section included in
Management’s Discussion and Analysis (Item 7) and
Note 4,
financial
statements (Item 8) - present the allocation of the
allowance for credit losses, and a description of
factors which influenced management’s judgment in
determining amounts of additions or reductions to the
allowance, if any, charged or credited to results of
operations.
“Distribution of Average Assets, Liabilities and
Shareholders’ Equity; Interest Rates and Interest
Differential”
- discloses deposit
information.
(Item 8)
table
Note 8,
the
consolidated financial statements (Item 8) - discloses
information regarding our short-term borrowings.
“Short-Term Borrowings,”
to
ITEM 1A. RISK FACTORS
Risk Factors
In the normal course of our business activities,
we are exposed to a variety of risks. The following is
a discussion of material risk factors applicable to us.
Additional information about our risk management
framework is included under “Risk Management” in
Management’s Discussion and Analysis in this Form
10-K. Additional risks beyond those described in our
Management's Discussion and Analysis or in the
following discussion may apply to our activities or
operations as currently conducted, or as we may
conduct them in the future, or in the markets in which
we operate or may in the future operate.
Strategic Risks
We are subject to intense competition in all
aspects of our business, which could negatively
affect our ability to maintain or increase our
profitability.
The markets in which we operate across all
facets of our business are both highly competitive and
global. These markets are changing as a result of
new and evolving laws and regulations applicable to
institutions. Regulatory-driven
financial services
market changes cannot always be anticipated, and
may adversely affect the demand for, and profitability
of, the products and services that we offer. In
addition, new market entrants and competitors may
address changes in the markets more rapidly than we
do, may have materially greater resources to invest in
infrastructure and product development than we do,
or may provide clients with a more attractive offering
of products and services, adversely affecting our
State Street Corporation | 24
business. Our efforts to develop and market new
products, particularly in the “Fintech” sector, may
position us
in new markets with pre-existing
competitors with strong market position. We have
also experienced, and anticipate that we will continue
to experience, significant pricing pressure in many of
our core businesses, particularly our custodial and
investment management services. This pricing
pressure has and may continue to impact our
revenue growth and operational margins and may
limit the positive impact of new client demand and
growth in AUC/A. Many of our businesses compete
with other domestic and international banks and
financial services companies, such as custody banks,
investment advisors, broker/dealers, outsourcing
companies and data processing companies. Further
consolidation within the financial services industry
could also pose challenges to us in the markets we
serve,
increased downward
including potentially
pricing pressure across our businesses.
Some of our competitors
including our
competitors
in core services, have substantially
greater capital resources than we do, are not subject
regulatory
to as stringent capital or other
requirements as we are, or may not be as
constrained as we are by these requirements due to
the relative size of our balance sheet. In some of our
businesses, we are service providers to significant
in some
competitors. These competitors are
instances significant clients, and the retention of
these clients involves additional risks, such as the
avoidance of actual or perceived conflicts of interest
and the maintenance of high levels of service quality
and intra-company confidentiality. The ability of a
competitor to offer comparable or improved products
or services at a lower price would likely negatively
increase our
affect our ability
profitability. Many of our core services are subject to
contracts that have relatively short terms or may be
terminated by our client after a short notice period. In
addition, pricing pressures as a result of the activities
of competitors, client pricing reviews, and rebids, as
well as the introduction of new products, may result in
a reduction in the prices we can charge for our
products and services.
to maintain or
We are subject to variability in our assets under
custody and/or administration and assets under
management, and in our financial results, due to
the significant size of many of our institutional
clients, and are also subject to significant pricing
pressure due
the considerable market
influence exerted by those clients.
to
Our clients include institutional investors, such
as mutual funds, collective investment funds, UCITS,
hedge funds and other investment pools, corporate
and public retirement plans, insurance companies,
foundations, endowments and investment managers.
In both our asset servicing and asset management
institutional
businesses, we endeavor
to attract
investors controlling large and diverse pools of
assets, as those clients typically have the opportunity
to benefit from the full range of our expertise and
service offerings. Due to the large pools of assets
controlled by these clients, the loss or gain of one
client, or even a portion of the assets controlled by
one client, could have a significant effect on our AUC/
A or our AUM, as applicable, in the relevant period.
Loss of all or a portion of the servicing of a client's
assets can occur for a variety of reasons. For
example, as a result of a decision to diversify
providers, one of our large asset servicing clients has
advised us it expects to move a significant portion of
its ETF assets currently with State Street to one or
more other providers, pending necessary approvals.
The transition is expected to begin in 2022 but will
the year ended
in 2023. For
principally occur
December 31, 2020, the fee revenue associated with
the transitioning assets represented approximately
1.5% of our total fee revenue. Our AUM or AUC/A are
also affected by decisions by institutional owners to
favor or disfavor certain investment instruments or
categories. Similarly, if one or more clients change
the asset class in which a significant portion of assets
are invested (e.g., by shifting investments from
emerging markets to the U.S.), those changes could
have a significant effect on our results of operations
in the relevant period, as our fee rates often change
based on the type of asset classes we are servicing
or managing. As our fee revenue is significantly
impacted by our levels of AUC/A and AUM, changes
in levels of different asset classes could have a
corresponding significant effect on our results of
operations in the relevant period. Large institutional
clients also, by their nature, are often able to exert
considerable market influence, and this, combined
with strong competitive forces in the markets for our
services, has resulted in, and may continue to result
in, significant pressure to reduce the fees we charge
for our services in both our asset servicing and asset
management lines of business. Our strategy of
focusing our efforts on the segments of the market for
investor services represented by very large asset
managers and asset owners causes us
to be
particularly impacted by this industry trend. Many of
these large clients are also under competitive and
regulatory pressures that are driving them to manage
the expenses that they and their investment products
incur more aggressively, which in turn exacerbates
their pressures on our fees.
Development and completion of new products
and services, including State Street Alpha, may
impose costs on us, involve dependencies on
third parties and may expose us to increased
operational and model risk.
Our financial performance depends, in part, on
our ability to develop and market new and innovative
services and to adopt or develop new technologies
that differentiate our products or provide cost
related
efficiencies, while avoiding
increased
State Street Corporation | 25
risks
relationships. Substantial
expenses. This dependency is exacerbated in the
current
financial
“FinTech” environment, where
institutions are investing significantly in evaluating
ledger
technologies, such as distributed
new
technology (“Blockchain"), and developing potentially
industry-changing products, services and standards.
For example, in 2018, we acquired CRD, and are
leveraging the capabilities acquired to create State
Street Alpha by combining with offerings from our
Investment Servicing business line. The introduction
of new products and services can require significant
time and resources, including regulatory approvals
and the development and implementation of technical
data management, control and model validation
requirements and effective security and resiliency
elements. New products and services, such as State
Street Alpha, often also involve dependencies on third
parties to, among other things, access innovative
technologies, develop new distribution channels or
form collaborative product and service offerings, and
can require complex strategic alliances and joint
venture
and
uncertainties are associated with the introduction of
new products and services, strategic alliances and
joint ventures, including rapid technological change in
the industry, our ability to access technical, data and
other information from our clients, significant and
ongoing investments required to bring new products
and services to market in a timely manner at
competitive prices, sharing of benefits
those
relationships, conflicts with existing business partners
and clients, protection of intellectual property, the
the necessary
competition
expertise and experience and sales and other
materials that fully and accurately describe the
product or service and its underlying risks and are
compliant with applicable regulations. New products
or services may fail to operate or perform as
expected and may not be suitable for the intended
client or may not produce anticipated efficiencies,
savings or benefits for either the client or us. Our
failure to manage these risks and uncertainties also
exposes us to enhanced risk of operational lapses,
which may result in the recognition of financial
statement liabilities. Regulatory and internal control
requirements, capital
requirements, competitive
alternatives, vendor relationships and shifting market
preferences may also determine if such initiatives can
be brought to market in a manner that is timely and
to successfully
attractive
manage all of the above risks in the development and
implementation of new products or services, including
completion of State Street Alpha, could have a
material adverse effect on our business and
reputation, consolidated results of operations or
financial condition.
to our clients. Failure
for employees with
in
Our business may be negatively affected by our
failure to update and maintain our technology
infrastructure.
certain
systems.
technological
In order to maintain and grow our business, we
must make strategic decisions about our current and
future business plans and effectively execute upon
those plans. Strategic initiatives that we are currently
include cost
developing or executing against
initiatives, enhancements and efficiencies to our
operational processes, improvements to existing and
new service offerings, targeting for sales growth
certain segments of the markets for investor services
and asset management, and enhancements
to
information
existing and development of new
technology and other
Implementing
strategic programs and creating cost efficiencies
involves
and
strategic,
operational risks. Many features of our present
initiatives include investment in systems integration
and new technologies and also the development of
new, and the evolution of existing, methods and tools
to accelerate the pace of innovation, the introduction
of new services and enhancements to the resiliency
of our systems and operations. These initiatives also
may result in increased or unanticipated costs or
earnings volatility, may take longer than anticipated to
implement and may result in increases in operating
losses,
inadvertent data disclosures or other
operating errors. In implementing these programs, we
may have material dependencies on third parties. The
transition to new operating processes and technology
infrastructure may also cause disruptions in our
relationships with clients and employees or loss of
institutional understanding and may present other
unanticipated technical or operational hurdles. In
addition, the relocation to or expansion of servicing
activities and other operations in different geographic
regions or vendors may entail client, regulatory and
other third party data use, storage and security
challenges, as well as other regulatory compliance,
business continuity and other considerations. As a
result, we may not achieve some or all of the
anticipated cost savings or other benefits and may
experience unanticipated challenges from clients,
regulators or other parties or reputational harm. In
addition, some systems development initiatives may
not have access
resources or
management attention and, consequently, may be
delayed or unsuccessful. Many of our systems
require enhancements to meet the requirements of
evolving
to enhance security and
resiliency and decommission obsolete technologies,
to permit us to optimize our use of capital or to reduce
the
the
implementation of our State Street Alpha platform and
integration of CRD requires substantial systems
development and expense. We may not have the
risk of operating error.
to significant
In addition,
regulation,
State Street Corporation | 26
resources
simultaneously.
to pursue all of
these objectives
The COVID-19 Pandemic Continues to Create
Significant Risks and Uncertainties
for Our
Business.
to
The extent to which the COVID-19 pandemic
continues
results of
impact our business,
operations, and financial condition, as well as our
regulatory capital and
liquidity ratios and other
regulatory requirements in the United States and
internationally, will depend on future developments,
which are highly uncertain and cannot be predicted,
including the scope and duration of the pandemic, the
effectiveness of our work from home arrangements
and staffing levels in operational facilities, challenges
associated with our return to office plans such as
maintaining a safe office environment and integrating
at-home and in-office staff, the impact of market
participants on which we rely, actions taken by
governmental authorities and other third parties in
response to the pandemic and the impact of equity
market
sales and
implementation cycles for some clients on our service
and management fee revenue.
valuations and extended
in
in our
financial markets,
The COVID-19 pandemic has negatively
impacted the global economy, caused fluctuations in
equity market valuations, at times decreased liquidity
in fixed income markets, created significant volatility
increased
and disruption
unemployment levels and disrupted global supply
chains. This has created, at peak periods of volatility,
extraordinary demand on our transaction processing
capabilities in our asset servicing business and
foreign exchange and asset
volatility
management businesses. The market and economic
uncertainty has also increased the risks inherent in
our activities as a credit provider to investment pools
and other institutional investors and caused us to
increase our provision for credit losses. In addition,
our and other market participants’ reliance upon work
from home capabilities, and the potential inability to
maintain critical staff in our operational facilities,
including facilities in the United States, the United
Kingdom, Germany, China, India and Poland, present
risks associated with our and local infrastructure,
increasingly
illness,
quarantine, the sustainability of a work from home
environment and increased risk of cyber-security
attacks. Any material or extended disruption of our
ability to deliver services or meet our responsibilities
in the settlement of securities or other market
activities is likely to result in operating losses, loss of
revenue or penalties under our service contracts
which may have a material adverse impact on our
results of operation and financial condition. Moreover,
governmental actions in response to the pandemic
are meaningfully
rate
influencing
environment, which has reduced, and may continue
to reduce, our net interest income and net interest
margin.
regulations,
restrictive
interest
local
the
that we
In March 2020, we announced, together with the
other U.S.-based G-SIBs,
temporarily
suspended our common stock repurchase program,
in light of the COVID-19 pandemic. Subsequently, in
connection with a requirement for all CCAR banking
organizations, including State Street, to participate in
additional supervisory capital stress tests due to the
challenges created by the COVID-19 pandemic, the
Federal Reserve limited the ability of all CCAR
banking organizations to make capital distributions for
the remainder of 2020. As a result, we did not return
capital to shareholders in the form of common stock
the nine months ended
repurchases during
December 31, 2020.
In December 2020, we
announced, following the results of the additional
stress test, that we have been authorized to continue
to pay common stock dividends at current levels and
to resume purchasing common shares in the first
quarter of 2021 in the aggregate amount up to the
average of our quarterly net income during 2020.
However, there can be no assurance the Federal
Reserve will not require additional stress testing,
modify existing or apply new
limitations on
distributions of capital to shareholders or introduce
new or additional regulatory actions, restrictions or
the COVID-19
requirements
pandemic or associated market or
industry
developments. Where permitted consistent with
regulatory standards, the timing of stock purchases,
transactions and number of shares
types of
purchased under our stock purchase programs will
including market
depend on several
conditions and our capital positions,
financial
performance and investment opportunities. Our
common stock purchase programs do not have
specific price targets and may be suspended at any
time.
in connection with
factors,
Acquisitions, strategic alliances, joint ventures
and divestitures pose risks for our business.
As part of our business strategy, we acquire
complementary businesses and technologies, enter
into strategic alliances and joint ventures and divest
portions of our business. We undertake transactions
of varying sizes to, among other reasons, expand our
geographic footprint, access new clients, distribution
channels, technologies or services, develop closer or
more collaborative relationships with our business
partners, efficiently deploy capital or leverage cost
savings or other business or financial opportunities.
We may not achieve the expected benefits of these
transactions, which could result in increased costs,
lowered revenues, ineffective deployment of capital,
regulatory concerns, exit costs or diminished
competitive position or reputation.
Transactions of
this nature also
involve a
number of risks and
tax,
regulatory, strategic, managerial, operational, cultural
and employment challenges, which could adversely
affect our consolidated results of operations and
financial, accounting,
State Street Corporation | 27
financial condition. For example, the businesses that
we acquire or our strategic alliances or joint ventures
may under-perform relative to the price paid or the
resources committed by us; we may not achieve
anticipated revenue growth or cost savings; or we
may otherwise be adversely affected by acquisition-
related charges. The intellectual property of an
acquired business may be an important component of
the value that we agree to pay for it. However, such
acquisitions are subject to the risks that the acquired
business may not own the intellectual property that
we believe we are acquiring, that the intellectual
property is dependent on licenses from third parties,
that the acquired business infringes on the intellectual
property rights of others, that the technology does not
have the acceptance in the marketplace that we
anticipated or that the technology requires significant
investment to remain competitive. Similarly, such
acquisitions present risks on our ability to retain the
acquired talent, which may be essential to achieve
our objectives in the acquisition. The integration of an
acquired
technology
infrastructure into ours has in the past and may in the
future also expose us to additional security and
resiliency risks. Further, past acquisitions have
resulted in the recognition of goodwill and other
significant
in our consolidated
statement of condition. For example, we recorded
goodwill and intangible assets of approximately $2.46
billion associated with our acquisition of CRD in 2018.
These assets are not eligible
in
regulatory capital under applicable requirements. In
addition, we may be required to record impairment in
our consolidated statement of
future
periods if we determine that the value of these assets
has declined.
intangible assets
information
business's
inclusion
income
for
in
risks
Through our acquisitions or joint ventures, we
may also assume unknown or undisclosed business,
operational, tax, regulatory and other liabilities, fail to
properly assess known contingent
liabilities or
assume businesses with internal control deficiencies.
While in most of our transactions we seek to mitigate
these
things, due
through, among other
diligence, indemnification provisions or insurance,
these or other risk-mitigating provisions we put in
place may not be sufficient to address these liabilities
and contingencies and involve credit and execution
risks associated with successfully seeking recourse
from a third party, such as the seller or an insurance
provider. Other major financial services firms have
recently paid significant penalties
resolve
government investigations into matters conducted in
significant part by acquired entities.
to
Various regulatory approvals or consents, formal
or informal, are generally required prior to closing of
these transactions, which may include approvals,
non-objections or regulatory exceptions from the
Federal Reserve and other domestic and non-U.S.
the
transaction, or may not approve
regulatory authorities. These regulatory authorities
may impose conditions on the completion of the
acquisition or require changes to its terms that
materially affect the terms of the transaction or our
ability to capture some of the opportunities presented
by
the
transaction. Any such conditions, or any associated
regulatory delays, could limit the benefits of the
transaction. Acquisitions or
joint ventures we
announce may not be completed if we do not receive
the
regulatory
regulatory approvals,
approvals are significantly delayed or if other closing
conditions are not satisfied.
required
if
and
integration
The
and
development of the benefits of our acquisitions
to our business and other
result
uncertainties.
retention
in risks
the
to
able
effectively
assimilate
In recent years, we have undertaken several
acquisitions, including our 2018 acquisition of CRD
and our 2016 acquisition of the General Electric Asset
Management (GEAM) business. The integration of
acquisitions presents risks that differ from the risks
associated with our ongoing operations. Integration
activities are complicated and time consuming and
can involve significant unforeseen costs. We may not
be
services,
technologies, key personnel or businesses of
acquired companies into our business or service
offerings as anticipated, and we may not achieve
related revenue growth or cost savings. We also face
the risk of being unable to retain, or cross-sell our
products or services to, the clients of acquired
companies or joint ventures and the risk of being
unable to cross-sell acquired products or services to
our existing clients.
In particular, some clients,
including significant clients, of an acquired business
may have the right to transition their business to other
providers on short notice for convenience, fiduciary or
other reasons and may take the opportunity of the
acquisition or market, commercial,
relationship,
service satisfaction or other developments following
the acquisition to terminate, reduce or renegotiate the
fees or other terms of our relationship. Any such
client losses, reductions or renegotiations likely will
reduce the expected benefits of the acquisition,
including revenues, cross-selling opportunities and
market share, cause impairment to goodwill and other
intangibles or result in reputational harm, which
effects could be material, and we may not have
recourse against the seller of the business or the
client. The risk of client loss is even greater where the
client
is a competitor of ours. Acquisitions of
technology firms can involve extensive information
technology
risk of
defects, security breaches and resiliency lapses and
product enhancement and development activities, the
costs of which can be difficult to estimate, as well as
heightened cultural and compliance concerns in
integration, with associated
State Street Corporation | 28
integrating an unregulated firm into a bank regulatory
environment. Acquisitions of Investment Servicing
businesses entail information technology systems
conversions, which involve operational risks, as well
as fiduciary and other risks associated with client
retention. Acquisitions of Asset Management
businesses similarly involve fiduciary and similar risks
associated with client retention, distribution channels
and additional servicing opportunities. Joint ventures
involve all of these risks, as well as risks associated
with shared control and decision-making (even in
majority-owned situations), minority rights and exit
rights, which can delay, challenge or
foreclose
execution on material opportunities or initiatives,
create
limit divestment
risks and
opportunities.
regulatory
With any acquisition, the integration of the
operations and resources of the businesses could
result in the loss of key employees, the disruption of
our and the acquired company's ongoing businesses
or inconsistencies in standards, controls, procedures
or policies that could adversely affect our ability to
maintain relationships with clients, business partners
or employees, maintain regulatory compliance or
achieve the anticipated benefits of the acquisition.
Integration efforts may also divert management
attention and resources.
Integration of CRD and its business, operations
and employees with our own may be more
difficult, costly or time consuming than expected,
and the anticipated benefits and cost synergies of
the acquisition may not be fully realized, which
could adversely impact our business operations,
financial condition and results of operations.
We completed our acquisition of CRD on
October 1, 2018. The success of the acquisition,
including
the achievement of anticipated growth
opportunities and cost synergies of the acquisition,
continues to be subject to a number of uncertainties
and will depend, in part, on our ability to successfully
combine and integrate CRD’s business into our
business in an efficient and effective manner. The
combined company may face significant challenges in
implementing such integration, including challenges
related to:
•
integrating CRD's business into our
own in a manner that permits the combined
company to achieve the cost and operating
the
synergies anticipated
acquisition, which could
the
anticipated benefits of the acquisition not
being realized partly or wholly in the time
frame currently anticipated or at all;
from
in
to result
result
•
retaining CRD’s clients, some of
which are our competitors;
•
retaining key management and
technical personnel;
•
integrating CRD’s software solutions
with our existing products and services and
related operations and systems, including
performance, risk and compliance analytics,
investment manager operations outsourcing,
accounting, administration and custody;
• accelerating
the development of
enhancements to the features and functions
of CRD’s software solutions;
•
coordinating and
integrating our
internal operations, compensation programs,
policies and procedures, and corporate
structures;
• potential unknown
liabilities and
unforeseen or increased costs and expenses;
•
the possibility of faulty assumptions
underlying expectations regarding potential
synergies and the integration process;
•
incurring
acquisition-
related costs and expenses associated with
combining our operations; and
significant
• performance shortfalls as a result of
the diversion of management’s attention and
resources
the
companies’ operations.
caused by
integrating
Any of these factors could result in our failure to
realize the anticipated benefits of the acquisition, on
the expected timeline or at all, and could adversely
impact our business operations, financial condition
and results of operations.
for qualified members of our
Competition
workforce is intense, and we may not be able to
attract and retain the highly skilled people we
need to support our business.
Our success depends, in large part, on our
ability to attract and retain key personnel. Competition
for the best people in most activities in which we
engage can be intense, and we may not be able to
hire people or retain them, particularly in light of
challenges associated with compensation restrictions
applicable, or which may become applicable, to
banks and some asset managers and that are not
applicable to other financial services firms in all
jurisdictions or to technology firms, generally. The
unexpected loss of services of key personnel in
business units,
information
technology, operations or other areas could have a
material adverse impact on our business because of
their skills, their knowledge of our markets, operations
and clients, their years of industry experience and, in
some cases, the difficulty of promptly finding qualified
replacement personnel. Similarly, the loss of key
personnel, either individually or as a group, could
adversely affect our clients' perception of our ability to
continue to manage certain types of investment
management mandates to provide other services to
functions,
control
State Street Corporation | 29
them or to maintain a culture of innovation and
proficiency.
Financial Market Risks
Geopolitical and economic conditions and
developments
affect us,
particularly if we face increased uncertainty and
unpredictability in managing our businesses.
adversely
could
financial markets can suffer
volatility,
from
Global
substantial
illiquidity and disruption,
particularly as a result of geopolitical disruptions,
slower economic growth and a shifting monetary
policy stance from key central banks. If such volatility,
illiquidity or disruption were to result in an adverse
economic environment in the U.S. or internationally or
result in a lack of confidence in the financial stability
of major developed or emerging markets, such
developments could have an adverse effect on our
business, as well as the businesses of our clients and
our significant counterparties, and could also increase
the difficulty and unpredictability of aligning our
business strategies, our
infrastructure and our
operating costs in light of uncertain market and
economic
could be
compounded by tighter monetary policy conditions,
disruptions to free trade and political uncertainty in
the U.S. and internationally.
conditions. These
risks
Market disruptions can adversely affect our
consolidated results of operations if the value of our
AUC/A or AUM decline, while the costs of providing
the related services remain constant or increase.
They may also result in investor preference trends
towards asset classes and markets deemed more
secure, such as cash or non-emerging markets, with
respect to which our fee rates are often lower. These
factors could reduce the profitability of our asset-
based fee revenue and could also adversely affect
our transaction-based revenue, such as revenues
from securities
foreign exchange
activities, and the volume of transactions that we
execute for or with our clients. Further, the degree of
volatility in foreign exchange rates can affect our
foreign exchange
In general,
increased currency volatility tends to increase our
market risk but also increases our opportunity to
generate
foreign exchange revenue. Conversely,
periods of lower currency volatility tend to decrease
our market risk but also decrease our
foreign
exchange revenue.
finance and
revenue.
trading
In addition, as our business grows globally and a
significant percentage of our revenue is earned (and
of our expenses paid) in currencies other than U.S.
dollars, our exposure to foreign currency volatility
could affect our levels of consolidated revenue, our
consolidated expenses and our consolidated results
of operations, as well as the value of our investment
in our non-U.S. operations and our non-U.S.
investment portfolio holdings. The extent to which
including
changes in the strength of the U.S. dollar relative to
other currencies affect our consolidated results of
operations,
the degree of any offset
between increases or decreases to both revenue and
expenses, will depend upon the nature and scope of
our operations and activities
relevant
jurisdictions during the relevant periods, which may
vary from period to period.
the
in
As our product offerings expand, in part as we
seek to take advantage of perceived opportunities
arising under various regulatory reforms and resulting
market changes, the degree of our exposure to
various market and credit risks will evolve, potentially
resulting in greater revenue volatility.
Our businesses have significant
International
operations, and disruptions in European and
Asian economies could have an adverse effect on
our consolidated results of operations or financial
condition.
sustainability,
European economic growth has faced significant
impacts from the COVID-19 pandemic, notably with
growth in the European Union expected to contract
markedly
in 2021. New or continued economic
deterioration will renew concerns about sovereign
debt
among
financial institutions and sovereigns, and political and
other risks despite stimulus from central banks.
Continued uncertainty in the external environment
has led to increased concern around the near- to
medium-term outlook for economic progress in the
regions in which we operate, including Europe and
Asia.
interdependencies
impacts
In order
to conform
the U.K. and E.U. and
for market access
In addition, uncertainty around implications of
the United Kingdom's exit from the E.U., known as
Brexit, and related developments, present risks which
to economic
include potential negative
activity or to cooperation in the future relationship
the resulting
between
consequences
financial
for
to anticipated
services.
restrictions on activity between the E.U. and the U.K.
following Brexit, we have developed and implemented
to maintain our servicing and
plans
that seek
in all material respects,
operational capabilities,
independent of the final outcome. There can be no
assurance, however, that our plans will address
effectively,
in part, all potential
contingencies associated with Brexit or that we may
inefficiencies
not experience additional costs or
associated with our European activities or client
dissatisfaction, delays
regulatory
in
approvals or other difficulties
in executing our
regional strategy.
in whole or
receiving
Given the scope of our International operations,
economic or market uncertainty, volatility, illiquidity or
disruption resulting from these and related factors
impact on our
could have a material adverse
State Street Corporation | 30
consolidated
condition.
results of operations or
financial
Our investment securities portfolio, consolidated
financial condition and consolidated results of
operations could be adversely affected by
changes in market factors, including interest
rates, credit spreads and credit performance.
that has persisted since
Our investment securities portfolio represented
approximately 35% of our
total assets as of
December 31, 2020. The gross interest income
associated with our investment portfolio represented
approximately 14% of our total gross revenue for the
year ended December 31, 2020 and has represented
as much as 31% of our total gross revenue in the
fiscal years since 2007. As such, our consolidated
financial condition and results of operations are
materially exposed to the risks associated with our
investment portfolio, including changes in interest
rates, credit spreads, credit performance (including
risk of default), credit ratings, our access to liquidity,
foreign exchange markets and mark-
to-market
valuations, and our ability to profitably manage
changes in repayment rates of principal with respect
to our portfolio securities. The continued low interest
rate environment
the
financial crisis began in mid-2007 limits our ability to
achieve a NIM consistent with our prior historical
averages. In addition, certain regulatory liquidity
standards, such as the LCR, require that we maintain
minimum levels of HQLA in our investment portfolio,
which generally generate lower rates of return than
in
other
increased levels of HQLA as a percentage of our
investment portfolio and an associated negative
impact on our NII and our NIM. As a result we may
not be able to attain our prior historical levels of NII
and NIM. For additional information regarding these
liquidity requirements, refer to the “Liquidity Coverage
Ratio and Net Stable Funding Ratio” section of
“Supervision and Regulation” in Business in this Form
10-K. We may enter into derivative transactions to
hedge or manage our exposure to interest rate risk,
as well as other risks, such as foreign exchange risk
and credit risk. Derivative instruments that we hold for
these or other purposes may not achieve their
intended results and could result in unexpected
losses or stresses on our
liquidity or capital
resources.
investment assets. This has
resulted
Our investment securities portfolio represents a
greater proportion of our consolidated statement of
condition and our loan portfolio represents a smaller
proportion (approximately 9% of our total assets as of
December 31, 2020), in comparison to many other
major financial institutions. In some respects, the
accounting and
treatment of our
investment securities portfolio may be less favorable
to us than a more traditional held-for-investment
lending portfolio. For example, under the Basel III
regulatory
rule, after-tax changes in the fair value of AFS
investment securities, such as those which represent
a majority of our investment portfolio, are included in
Tier 1 capital. Since loans held for investment are not
subject to a fair value accounting framework, changes
in the fair value of loans (other than expected credit
losses) are not similarly included in the determination
of Tier 1 capital under the Basel III rule. Due to this
differing treatment, we may experience increased
variability in our Tier 1 capital relative to other major
financial institutions whose loan-and-lease portfolios
represent a larger proportion of their consolidated
total assets than ours.
Additional risks associated with our investment
portfolio include:
hold
class
• Asset
European
operations,
concentration. Our
investment portfolio continues
to have
significant concentrations in several classes
of securities, including agency residential
MBS, commercial MBS and other ABS, and
securities with concentrated exposure
to
consumers. These classes and types of
securities experienced significant
liquidity,
valuation and credit quality deterioration
during the financial crisis that began in
mid-2007. We
non-U.S.
also
government securities, non-U.S. MBS and
ABS with exposures to European countries,
have
sovereign-debt markets
whose
experienced increased stress at times since
2011 and may continue to experience stress
in the future. For further information, refer to
the risk factor titled “Our businesses have
significant
and
disruptions in European economies could
have an adverse effect on our consolidated
results of operations or financial condition".
Further, we hold a portfolio of U.S. state and
municipal bonds, the value of which may be
affected by the budget deficits that a number
of states and municipalities currently face,
resulting in risks associated with this portfolio.
• Effects of market conditions.
If
market conditions deteriorate, our investment
portfolio could experience a decline in market
value, whether due to a decline in liquidity or
an increase in the yield required by investors
to hold such securities, regardless of our
credit view of our portfolio holdings.
In
addition, in general, deterioration in credit
quality, or
in management's
expectations regarding repayment timing or
in management's investment intent to hold
securities to maturity, in each case with
respect to our portfolio holdings, could result
in recognition of an allowance for expected
credit losses or in impairment. Similarly, if a
material portion of our investment portfolio
were to experience credit deterioration, our
changes
State Street Corporation | 31
risk
capital ratios as calculated pursuant to the
Basel III rule could be adversely affected.
This
is greater with portfolios of
investment securities that contain credit risk
than with holdings of U.S. Treasury
securities.
further subject
• Effects of
interest
rates. Our
to
is
investment portfolio
changes in both U.S. and non-U.S. (primarily
in Europe) interest rates, and could be
negatively affected by changes in those
rates, whether or not expected. This is
particularly true in the case of a quicker-than-
anticipated increase in interest rates, which
would decrease market values in the near-
term, or monetary policy that results in
persistently low or negative rates of interest
on certain investments. The latter has been
the case, for example, with respect to ECB
monetary policy, including negative interest
rates in some jurisdictions, with associated
negative effects on our investment portfolio
reinvestment, NII and NIM. The effect on our
NII has been exacerbated by the effects in
recent fiscal years of the strong U.S. dollar
relative to other currencies, particularly the
Euro. If European interest rates remain low or
decrease and the U.S. dollar strengthens
relative to the Euro, the negative effects on
our NII likely will continue or increase. The
overall level of NII can also be impacted by
the size of our deposit base, as further
increases in interest rates could lead to
reduced deposit levels and also lower overall
NII. Further, a reduction in deposit levels
could increase the requirements under the
regulatory liquidity standards requiring us to
invest a greater proportion of our investment
portfolio holdings in HQLA that have lower
yields than other investable assets. See also,
“Our business activities expose us to interest
rate risk” in this section.
Our business activities expose us to interest rate
risk.
In our business activities, we assume interest
rate risk by investing short-term deposits received
from our clients in our investment portfolio of longer-
and intermediate-term assets. Our NII and NIM are
affected by among other things, the levels of interest
rates in global markets, changes in the relationship
between short- and long-term interest rates, the
direction and speed of interest rate changes and the
asset and liability spreads relative to the currency and
geographic mix of our interest-earning assets and
interest-bearing
are
influenced, among other things, by a variety of
forces and expectations,
economic and market
including monetary policy and other activities of
liabilities. These
factors
central banks, such as the Federal Reserve and ECB,
that we do not control. Our ability to anticipate
changes in these factors or to hedge the related on-
and off-balance sheet exposures, and the cost of any
such hedging activity, can significantly influence the
success of our asset-and-liability management
activities and the resulting level of our NII and NIM.
The impact of changes in interest rates and related
factors will depend on the relative duration and fixed-
or floating-rate nature of our assets and liabilities.
Sustained lower interest rates, a flat or inverted yield
curve and narrow credit spreads generally have a
constraining effect on our NII. In addition, our ability
to change deposit rates in response to changes in
interest rates and other market and related factors is
limited by client relationship considerations. For
additional information about the effects on interest
rates on our business, refer to the Market Risk
Management
"Asset-and-Liability
in our Management's
Management Activities"
Discussion and Analysis in this Form 10-K.
section,
risk
credit
assume
significant
We
to
counterparties, many of which are major financial
institutions. These financial institutions and other
counterparties may also have substantial
financial dependencies with other
financial
institutions and sovereign entities. These credit
exposures and concentrations could expose us to
financial loss.
financial
that share
The financial markets are characterized by
interdependencies among numerous
extensive
including banks, central banks, broker/
parties,
dealers, insurance companies and other financial
institutions. These financial institutions also include
collective investment funds, such as mutual funds,
UCITS and hedge
these
funds
institutions,
interdependencies. Many
including collective investment funds, also hold, or
are exposed to, loans, sovereign debt, fixed-income
securities, derivatives, counterparty and other forms
of credit risk in amounts that are material to their
financial condition. As a result of our own business
practices and these interdependencies, we and many
of our clients have concentrated counterparty
exposure to other financial institutions and collective
investment funds, particularly large and complex
institutions, sovereign issuers, mutual funds, UCITS
and hedge funds. Although we have procedures for
aggregate
individual
monitoring
counterparty risk, significant individual and aggregate
counterparty exposure is inherent in our business, as
our focus is on servicing large institutional investors.
both
and
In the normal course of our business, we
assume concentrated credit risk at the individual
obligor,
level. Such
or
concentrations may be material and can often exceed
10% of our consolidated total shareholders' equity.
Our material counterparty exposures change daily,
counterparty
group
State Street Corporation | 32
the counterparties or groups of
and
related
counterparties to which our risk exposure exceeds
10% of our consolidated total shareholders' equity are
also variable during any reported period; however,
our largest exposures tend to be to other financial
institutions.
of
counterparty
Concentration
exposure
presents significant risks to us and to our clients
because the failure or perceived weakness of our
counterparties (or in some cases of our clients'
counterparties) has the potential to expose us to risk
of financial loss. Changes in market perception of the
financial strength of particular financial institutions or
sovereign issuers can occur rapidly, are often based
on a variety of factors and are difficult to predict.
to
financial
factors contributed
This was observed during the financial crisis that
in 2007-2008, when economic, market,
began
the
political and other
perception of many
institutions and
sovereign issuers as being less credit worthy. This led
to credit downgrades of numerous large U.S. and
non-U.S. financial institutions and several sovereign
issuers (which exposure stressed
the perceived
creditworthiness of financial institutions, many of
which invest in, accept collateral in the form of, or
value other transactions based on the debt or other
securities issued by sovereigns) and substantially
reduced value and liquidity in the market for their
credit instruments. These or other factors could
again contribute to similar consequences or other
market risks associated with reduced
levels of
liquidity. As a result, we may be exposed to increased
counterparty risks, either resulting from our role as
principal or because of commitments we make in our
capacity as agent for some of our clients.
Additional areas where we experience exposure
to credit risk include:
investors
• Short-term credit. The degree of
client demand for short-term credit tends to
increase during periods of market turbulence,
which may expose us to further counterparty-
related risks. For example,
in
collective investment vehicles for which we
act as custodian may experience significant
redemption activity due to adverse market or
economic news. Our relationship with our
clients and the nature of the settlement
process for some types of payments may
result in the extension of short-term credit in
such circumstances. We also provide
committed lines of credit to support such
activity. For some types of clients, we provide
their
credit
portfolios, which may expose us to potential
loss if the client experiences investment
losses or other credit difficulties.
to allow
leverage
them
to
•
to
time
from
time exposed
Industry and country risks. In addition
to our exposure to financial institutions, we
are
to
concentrated credit risk at an industry or
country level. This concentration risk also
applies to groups of unrelated counterparties
that may have similar investment strategies
involving one or more particular industries,
regions, or other characteristics. These
unrelated counterparties may concurrently
experience
their
performance, liquidity or reputation due to
events or other
factors affecting such
investment strategies. Though potentially not
material individually (relative to any one such
counterparty), our credit exposures to such a
group of counterparties could expose us to a
single market or political event or a correlated
set of events that, in the aggregate, could
have a material adverse impact on our
business.
adverse
effects
to
and
emerging
• Subcustodian
in which our clients
risks. Our use of
unaffiliated subcustodians exposes us
to
credit risk, in addition to other risks, such as
operational risk, dependencies on credit
extensions and risks of the legal systems of
the jurisdictions in which the subcustodians
operate, each of which may be material. Our
to risk of
operating model exposes us
unaffiliated sub-custodians
to a degree
greater than some of our competitors who
have banking operations in more jurisdictions
than we do. Our sub-custodians operate in all
invest,
jurisdictions
other
including
underdeveloped markets
entail
heightened risks. These risks are amplified
due to evolving regulatory requirements with
respect to our financial exposures in the
event those subcustodians are unable to
return clients’ assets, including, in some
regulatory regimes, such as the E.U.'s UCITS
V directive,
that we be
requirements
responsible for resulting losses suffered by
our clients. We may agree to similar or more
stringent standards with clients that are not
subject
regulations. Our
subcustodians are also large, global financial
institutions with whom we have other credit
exposures. This credit exposure to these
financial institutions or subcustodians may
limit the financial relationship we may have
with these counterparties.
such
that
to
• Settlement risks. We are exposed to
settlement risks, particularly in our payments
and
foreign exchange activities. Those
activities may lead to extension of credit and
the event of a
in
consequent
losses
State Street Corporation | 33
counterparty breach or an operational error,
including the failure to provide credit. Due to
our membership in several industry clearing
or settlement exchanges, we may be required
to guarantee obligations and liabilities, or
provide financial support, in the event that
other members do not honor their obligations
or default. Moreover, not all of our
counterparty exposure is secured, and even
when our exposure is secured, the realizable
value of the collateral may have declined by
the time we exercise our rights against that
collateral. This risk may be particularly acute
if we are required to sell the collateral into an
illiquid or temporarily-impaired market or with
respect to clients protected by sovereign
immunity. We are exposed to risk of short-
term credit or overdraft of our clients in
facilitate
connection with
foreign
settlement of
exchange
particularly when
contractual settlement has been agreed with
our clients. The occurrence of overdrafts at
peak volatility could create significant credit
exposure to our clients depending upon the
value of such clients' collateral at the time.
trades and related
the process
activities,
to
in our securities
riskless principal, and
• Securities lending and repurchase
agreement
indemnification. On behalf of
lending
clients enrolled
program, we lend securities to banks, broker/
dealers and other institutions. In the event of
a failure of the borrower to return such
securities, we typically agree to indemnify our
clients for the amount by which the fair
market value of those securities exceeds the
proceeds of the disposition of the collateral
posted by the borrower in connection with
such transaction. We also lend and borrow
securities as
in
connection with those transactions receive a
security interest in securities held by the
borrowers in their securities portfolios and
advance cash or securities as collateral to
securities lenders. Borrowers are generally
required to provide collateral equal to a
contractually agreed percentage equal to or
in excess of the fair market value of the
loaned securities. As the fair market value of
the loaned securities or collateral changes,
additional collateral
the
borrower or collateral is returned to the
borrower. In addition, our agency securities
lending clients often purchase securities or
financial
from
instruments
financial
other
counterparties,
broker/dealers,
including
under repurchase arrangements, frequently
as a method of reinvesting the cash collateral
they receive from lending their securities.
is provided by
is
intended
to exceed
level. As with
Under these arrangements, the counterparty
is obligated to repurchase these securities or
financial instruments from the client at the
same price (plus an agreed rate of return) at
some point in the future. The value of the
collateral
the
counterparty's payment obligation, and
collateral is adjusted daily to account for
shortfall under, or excess over, the agreed-
upon collateralization
the
securities lending program, we agree to
indemnify our clients from any loss that would
arise on a default by the counterparty under
the
these
repurchase arrangements
proceeds
the
securities or other financial assets held as
collateral are less than the amount of the
client's
repayment
instances
counterparty.
of
for both securities
counterparty default,
lending and repurchase agreements, we,
rather than our client, are exposed to the
risks associated with collateral value.
if
the disposition of
obligation
such
from
the
by
In
into
repurchase and
• Repurchase and resale transactions.
resale
We enter
transactions
in eligible securities with
sponsored clients and with other FICC
members and, pursuant to FICC Government
Securities Division rules, submit, novate and
net the transactions. We may sponsor clients
to clear their eligible repurchase transactions
with FICC, backed by our guarantee to FICC
of
full payment and
performance of our sponsored member
clients’ respective obligations. Although we
obtain a security interest from our sponsored
clients in the collateral that they receive, we
are exposed to the associated risks, including
insufficiency of the value of collateral.
the prompt and
• Stable value arrangements. We enter
into stable value wrap derivative contracts
with unaffiliated stable value funds that allow
a stable value fund to provide book value
coverage to its participants. During the 2008
financial crisis, the book value of obligations
under many of these contracts exceeded the
market value of
the underlying portfolio
holdings. Concerns regarding the portfolio of
investments protected by such contracts, or
regarding
manager
overseeing such an investment option, may
result in redemption demands from stable
value products covered by benefit-responsive
contracts at a time when the portfolio's
market value is less than its book value,
potentially exposing us to risk of loss.
investment
the
State Street Corporation | 34
• Private equity subscription finance
credit facilities. We provide credit facilities to
private equity funds. The portfolio consists of
capital call lines of credit, the repayment of
which is dependent on the receipt of capital
calls
limited partner
investors in the funds managed by these
firms.
the underlying
from
• U.S.
obligations
municipal
remarketing credit facilities. We provide credit
facilities in connection with the remarketing of
potentially
U.S. municipal
obligations,
to credit exposure
exposing us
the
to
municipalities
issuing such bonds and
contingent liquidity risk.
in
• Leveraged loans. In recent years, we
have increased our investment in leveraged
loans, both in the U.S. and in Europe. We
invest in these loans to non-investment grade
loan
through participation
borrowers
syndications in the non-investment grade
lending market. We rate these loans as
"speculative" under our internal risk-rating
framework, and these loans have significant
exposure to credit losses relative to higher-
rated loans. We are therefore at a higher risk
of default with respect to these investments
relative to other of our investments activities.
In addition, unlike other financial institutions
that may have an active role in managing
individual loan compliance, our investment in
these loans is generally as a passive investor
with limited control. As this portfolio grows
and becomes more seasoned, our allowance
for credit losses related to these loans may
increase through additional provisions for
credit losses.
these
• Commercial Real Estate. We finance
commercial and multi-family properties, which
serve as collateral for our loans. Although
loans may become
collateralized,
under-secured if the value of the collateral
was over-estimated or changes. Loan
payments are dependent on the successful
operation and management of the underlying
collateral property to generate sufficient cash
flow to repay the loan in a timely fashion. A
material decline in real estate markets or
economic conditions could negatively impact
value or property performance, which could
adversely
loan repayment,
timely
which may result in increased provision for
credit losses on loans, and actual losses,
either of which would have an adverse impact
on our net income. We seek to minimize
these risks by maintaining lending policies
and procedures and underwriting standards,
however, there can be no assurance that
impact
these will protect us
losses or delinquencies.
from credit-related
In some cases,
• Unavailability of netting. We are
generally not able to net exposures across
counterparties that are affiliated entities and
may not be able in all circumstances to net
exposures to the same legal entity across
multiple products. As a consequence, we
may incur a loss in relation to one entity or
product even though our exposure to an
entity's affiliates or across product types is
for
over-collateralized.
example in our securities finance and foreign
exchange activities, we are able to enter into
netting agreements that allow us to net
offsetting exposures and payment obligations
against one another. In the event we become
unable, due
to operational constraints,
actions by regulators, changes in accounting
law or regulation (or related
principles,
interpretations) or other factors, to net some
or all of our offsetting exposures and
payment
those
agreements, we would be required to gross
up our assets and liabilities on our statement
of condition and our calculation of RWA,
accordingly. This would result in a potentially
material increase in our regulatory ratios,
including LCR, and present increased credit,
liquidity, asset-and-liability management and
operational risks, some of which could be
material.
obligations
under
of
including
counterparties,
Under currently prevailing regulatory restrictions
on credit exposure we are required to limit our
exposures to specific issuers or counterparties or
groups
financial
issuers. These credit
institutions and sovereign
exposure restrictions have and may further adversely
affect certain of our businesses, may require that we
expand our credit exposure to a broader range of
issuers and counterparties, including issuers and
counterparties that represent increased credit risk,
may reduce or foreclose our ability to enter into
advantageous transactions or ventures with particular
counterparties and may require that we modify our
operating models or the policies and practices we use
to manage our consolidated statement of condition.
The effects of these considerations may increase
when evaluated under a stressed environment in
stress testing, including CCAR. In addition, we are an
adherent to the International Swaps and Derivatives
Association 2015 Universal Resolution Stay Protocol
and as such are subject to restrictions against the
exercise of rights and remedies against
fellow
adherents, including other major financial institutions,
in the event they or an affiliate of theirs enters into
resolution. Although our overall business is subject to
these factors, several of our activities are particularly
State Street Corporation | 35
sensitive to them including our currency trading
business and our securities finance business.
the
Given
limited
strong
counterparties in the current market, we are not able
to mitigate all of our and our clients' counterparty
credit risk.
number
of
Fee revenue represents a significant majority of
our consolidated revenue and
is subject to
decline, among other things, in the event of a
reduction in, or changes to, the level or type of
investment activity by our clients.
We rely primarily on fee-based services to derive
our revenue. This contrasts with commercial banks
that may rely more heavily on interest-based sources
of revenue, such as loans. During 2020 total fee
revenue represented approximately 81% of our total
revenue. Fee revenue generated by our Investment
Servicing and Investment Management businesses is
augmented by foreign exchange trading services,
securities finance and software and processing fee
revenue. The level of these fees is influenced by
several factors, including the mix and volume of our
AUC/A and our AUM, the value and type of securities
positions held (with respect to assets under custody)
and the volume of our clients' portfolio transactions,
and the types of products and services used by our
clients.
include
In addition, our clients
institutional
investors, such as mutual funds, collective investment
funds, UCITS, hedge funds and other investment
pools, corporate and public
retirement plans,
insurance companies, foundations, endowments and
investment managers. Economic, market or other
factors that reduce the level or rates of savings in or
with those institutions, either through reductions in
financial asset valuations or through changes in
investor preferences, could materially reduce our fee
revenue and have a material adverse effect on our
consolidated results of operations.
If we are unable to effectively manage our capital
and liquidity, including by continuously attracting
deposits and other short-term
funding, our
consolidated financial condition, including our
regulatory capital ratios, our consolidated results
of operations and our business prospects, could
be adversely affected.
is critical
Liquidity management, including on an intra-day
the management of our
basis,
consolidated statement of condition and to our ability
to service our client base. We generally use our
liquidity to:
to
• meet clients' demands for return of
their deposits;
• extend credit
connection with our
businesses; and
to our clients
in
investor services
•
fund
long- and
the pool of
intermediate-term assets that are included in
the investment securities and loan portfolio
carried in our consolidated statement of
condition.
Because the demand for credit by our clients,
particularly settlement related extensions of credit, is
difficult to predict and control, and may be at its peak
at times of disruption in the securities markets, and
because the average maturity of our investment
securities and loan portfolios is longer than the
contractual maturity of our client deposit base, we
need to continuously attract, and are dependent on
access to, various sources of short-term funding.
Since the 2008 financial crisis, the level of client
deposits held by us has tended to increase during
times of market disruption; however, since such
deposits are considered to be transitory, we have
historically deposited so-called excess deposits with
U.S. and non-U.S. central banks and in other highly
liquid but low-yielding instruments. These levels of
excess client deposits, when they manifest, have
increased our NII but have adversely affected our
NIM.
deposits
In managing our liquidity, our primary source of
short-term funding is client deposits, which are
predominantly
by
transaction-based
institutional investors. Our ability to continue to attract
these deposits, and other short-term funding sources
such as certificates of deposit, is subject to variability
based on a number of factors, including volume and
volatility in global financial markets, the interest rates
that we are prepared to pay for these deposits, the
loss or gain of one or more clients, client interest in
reducing
the
perception of safety of these deposits or short-term
short-term
obligations
investments available to our clients, including the
capital markets, and the classification of certain
deposits
related
discussions we may have from time to time with
clients regarding better balancing our clients' cash
management needs with our economic and regulatory
objectives.
regulatory purposes and
non-interest
alternative
deposits,
bearing
relative
for
to
The Parent Company is a non-operating holding
company and generally maintains only limited cash
and other liquid resources at any time primarily to
meet anticipated near-term obligations. To effectively
manage our liquidity we routinely transfer assets
among affiliated entities, subsidiaries and branches.
factors, such as regulatory
Internal or external
requirements and standards,
including resolution
planning and restrictions on dividend distributions,
influence our liquidity management and may limit our
ability to effectively transfer liquidity internally which
could, among other things, restrict our ability to fund
operations, dividends or stock repurchases or pay
interest on debt securities or require us to seek
State Street Corporation | 36
external and potentially more costly capital and
impact our liquidity position.
In addition, while not obligations of ours, the
investment products that we manage for third parties
may be exposed to liquidity risks. These products
may be funded on a short-term basis or the clients
participating in these products may have a right to the
return of cash or assets on limited notice. These
business activities include, among others, securities
finance collateral pools, money market and other
short-term investment funds and liquidity facilities
utilized in connection with municipal bond programs.
If clients demand a return of their cash or assets,
particularly on limited notice, and these investment
pools do not have the liquidity to support those
demands, we could be forced to sell investment
securities held by these asset pools at unfavorable
prices, damaging our reputation as a service provider
and potentially exposing us to claims related to our
management of the pools.
The availability and cost of credit in short-term
markets are highly dependent on
the markets'
perception of our liquidity and creditworthiness. Our
efforts to monitor and manage our liquidity risk,
including on an
intra-day basis, may not be
successful or sufficient to deal with dramatic or
unanticipated changes
the global securities
in
markets or other event-driven reductions in liquidity.
As a result of such events, among other things, our
cost of funds may increase, thereby reducing our NII,
or we may need to dispose of a portion of our
investment securities portfolio, which, depending on
market conditions, could result in a loss from such
sales of investment securities being recorded in our
consolidated statement of income.
We may need to raise additional capital or debt in
the future, which may not be available to us or
may only be available on unfavorable terms.
We may need to raise additional capital or debt
in order to maintain our credit ratings, in response to
regulatory changes, including capital rules, or for
other purposes, including financing acquisitions and
joint ventures. For example, in November 2019,
January 2020 and March 2020, we issued additional
long-term debt in order to maintain levels to satisfy
internal and
in
September 2018 and July 2018 we issued preferred
stock and common stock, respectively, to finance our
acquisition of CRD.
requirements, and
regulatory
to access
However, our ability
the capital
markets, if needed, on a timely basis or at all will
depend on a number of factors, such as the state of
the financial markets and securities law requirements
and standards. In the event of rising interest rates,
disruptions in financial markets, negative perceptions
of our business or our financial strength, or other
factors that would increase our cost of borrowing, we
cannot be sure of our ability to raise additional capital
or debt, if needed, on terms acceptable to us. Any
diminished ability to raise additional capital or debt, if
needed, could adversely affect our business and our
ability to implement our business plan, capital plan
and strategic goals,
financing of
acquisitions and joint ventures and our efforts to
maintain regulatory compliance.
including
the
Any downgrades in our credit ratings, or an
actual or perceived reduction in our financial
strength, could adversely affect our borrowing
costs, capital costs and liquidity position and
cause reputational harm.
Major independent rating agencies publish credit
ratings for our debt obligations based on their
evaluation of a number of factors, some of which
relate
to our performance and other corporate
developments, including financings, acquisitions and
joint ventures, and some of which relate to general
industry conditions. We anticipate that the rating
agencies will continue to review our ratings regularly
based on our consolidated results of operations and
developments in our businesses, including regulatory
considerations such as resolution planning. One or
more of the major independent credit rating agencies
have in the past downgraded, and may in the future
downgrade, our credit ratings, or have negatively
revised their outlook for our credit ratings. The current
market and regulatory environment and our exposure
to financial institutions and other counterparties,
including sovereign entities, increase the risk that we
may not maintain our current ratings, and we cannot
provide assurance that we will continue to maintain
our current credit ratings. Downgrades in our credit
ratings may adversely affect our borrowing costs, our
capital costs and our ability to raise capital and, in
turn, our liquidity. A failure to maintain an acceptable
credit rating may also preclude us
from being
competitive in various products.
Additionally, our counterparties, as well as our
clients, rely on our financial strength and stability and
evaluate the risks of doing business with us. If we
experience diminished financial strength or stability,
actual or perceived, due to the effects of market or
regulatory developments, announced or rumored
business developments, consolidated
results of
operations, a decline
in our stock price or a
downgrade to our credit rating, our counterparties
may be less willing to enter into transactions, secured
or unsecured, with us, our clients may reduce or
place limits on the level of service we provide to them
or seek to transfer the business, in whole or in part, to
other service providers or our prospective clients may
select other service providers. Any or, all of these
may have adverse effects on our business and
reputation.
State Street Corporation | 37
financial
The risk that we may be perceived as less
creditworthy than other market participants is higher
as a result of recent market developments, which
include an environment in which the consolidation,
and in some instances failure, of financial institutions,
institutions, has
including major global
resulted
larger
in a smaller number of much
counterparties and competitors. If our counterparties
perceive us to be a less viable counterparty, our
ability to enter into financial transactions on terms
acceptable to us or our clients, on our or our clients'
behalf, will be materially compromised. If our clients
reduce their deposits with us or select other service
providers for all or a portion of the services we
provide
revenues will decrease
to
accordingly.
them, our
securities portfolio and our ability to extend credit
through committed facilities, loans to our clients or
our principal securities lending activities. In addition,
further capital and liquidity requirements are being
implemented or are under consideration by U.S. and
international banking regulators. Any of these rules,
or any additional regulatory initiatives introduced
under the new administration, could have a material
effect on our capital and liquidity planning and related
activities, including the management and composition
of our investment securities portfolio and our ability to
extend committed contingent credit facilities to our
clients. The full effects of these rules, and of other
regulatory initiatives related to capital or liquidity, on
us and State Street Bank are subject to further
regulatory guidance, action or rule-making.
Compliance and Regulatory Risks
Systemic Importance
to
Our business and capital-related activities,
including our ability
to
shareholders and repurchase our capital stock,
may be adversely affected by our implementation
of regulatory capital and liquidity standards that
we must meet or as a result of regulatory capital
stress testing.
return capital
Basel III and Dodd-Frank Act
We are required to calculate our risk-based
capital ratios under both the Basel III advanced
approaches and the Basel III standardized approach,
and we are subject to the more stringent of the risk-
based capital ratios calculated under the advanced
approaches and
the
standardized approach in the assessment of our
capital adequacy.
those calculated under
In implementing various aspects of these capital
regulations, we are making interpretations of the
intent. The Federal Reserve may
regulatory
determine that we are not in compliance with the
capital rules and may require us to take actions to
come into compliance that could adversely affect our
business operations, our regulatory capital structure,
our capital ratios or our financial performance, or
otherwise restrict our growth plans or strategies. In
addition, banking regulators could change the Basel
III rule or their interpretations as they apply to us,
including
or
changes
interpretations made
implementing
provisions of
the Dodd-Frank Act, which could
adversely affect us and our ability to comply with the
Basel III rule.
to
in regulations
standards
these
Along with the Basel III rule, banking regulators
also introduced additional requirements, such as the
SLR, LCR and the recently finalized NSFR, each of
which presents compliance risks.
For example, the specification of the various
elements of the NSFR in the final rule could have a
material effect on our business activities, including
the management and composition of our investment
As a G-SIB, we are generally subject to the most
stringent provisions under the Basel III rule. For
example, we are subject to the Federal Reserve's
rules on the implementation of capital surcharges for
U.S. G-SIBs, and on TLAC, LTD and clean holding
company requirements for U.S. G-SIBs which we
refer to as the "TLAC rule". For additional information
on these requirements, refer to the “Regulatory
Capital Adequacy and Liquidity Standards” section
under “Supervision and Regulation” in Business in
this Form 10-K.
Not all of our competitors have similarly been
designated as systemically important nor are all of
them subject to the same degree of regulation as a
bank or financial holding company, and therefore
some of our competitors are not subject to the same
additional capital requirements.
Comprehensive Capital Analysis and Review
We are required by the Federal Reserve to
conduct periodic stress
testing of our business
operations and to develop an annual capital plan as
part of the Federal Reserve's CCAR process. The
stress testing and CCAR processes, the severity and
other characteristics of which may evolve from year-
to-year, are used by the Federal Reserve to evaluate
our management of capital and the adequacy of our
regulatory capital and to determine the SCB that we
must maintain above our minimum regulatory capital
requirements
to make capital
distributions and discretionary bonuses without
limitation. The results of the stress testing and CCAR
processes are difficult to predict due, among other
things, to the Federal Reserve's use of proprietary
stress models that differ from our internal models.
The results of the Federal Reserve’s supervisory
stress tests may result in an increase in our SCB
requirement. The amounts of the planned capital
actions in our capital plan in any year, including stock
repurchases and dividends, may be substantially
reduced from the amounts included in prior capital
in order
for us
State Street Corporation | 38
plans. These reductions may reflect changes in one
or more different factors, including our business
prospects and related capital needs, our capital
position, proposed acquisitions or other uses of
capital, the models used in our capital planning
process, the supervisory models used by the Federal
Reserve to stress our balance sheet, the Federal
Reserve’s hypothetical economic scenarios for the
CCAR process,
the Federal Reserve’s CCAR
instructions and the Federal Reserve’s supervisory
expectations for the capital planning process. Any of
us, as
these potential events could
applicable, to revise our stress-testing or capital
management approaches, resubmit our capital plan
or postpone, cancel or alter our planned capital
actions. In addition, changes in our business strategy,
merger or acquisition activity or uses of capital could
result in a change in our capital plan and its
associated capital actions, and may require us to
resubmit our capital plan to the Federal Reserve and
recalculate our SCB requirement. We are also subject
to asset quality reviews and stress testing by the ECB
and in the future we may be subject to similar reviews
and testing by other regulators.
require
Our
capital and
liquidity
implementation of capital and
requirements, including our capital plan, may not be
approved or may be objected to by the Federal
Reserve, and the Federal Reserve may impose
capital requirements in excess of our expectations or
require us to maintain levels of liquidity that are
higher than we may expect and which may adversely
affect our consolidated revenues. In the event that
liquidity
implementation of
our
initiatives or our
requirements under regulatory
current capital structure are determined not
to
conform with current and future capital requirements,
our ability to deploy capital in the operation of our
business or our ability
to
shareholders or to repurchase our capital stock may
be constrained, and our business may be adversely
forgo
In addition, we may choose
affected.
business opportunities, due to their impact on our
capital plan or stress tests, including CCAR and our
SCB
that
regulators in other jurisdictions in which we have
banking subsidiaries determine that our capital or
liquidity levels do not conform with current and future
regulatory requirements, our ability to deploy capital,
our levels of liquidity or our business operations in
those jurisdictions may be adversely affected.
requirement. Likewise,
to distribute capital
the event
to
in
For additional
information about
the above
matters, refer to “Regulatory Capital Adequacy and
Liquidity Standards” section under "Supervision and
Regulation" in Business and “Capital” section under
"Financial Condition"
our Management's
in
Discussion and Analysis in this Form 10-K.
We face extensive and changing government
regulation in the U.S. and in non-U.S. jurisdictions
in which we operate, which may increase our
costs and expose us
to
compliance.
to risks related
Most of our businesses are subject to extensive
regulation by multiple regulatory bodies, and many of
the clients
to which we provide services are
themselves subject to a broad range of regulatory
requirements. These regulations may affect the scope
of, and the manner and terms of delivery of, our
services. As a financial institution with substantial
international operations, we are subject to extensive
regulation and supervisory oversight, both inside and
outside of the U.S. This regulation and supervisory
oversight affects, among other things, the scope of
our activities and client services, our capital and
the
organizational structure, our ability
operations of our subsidiaries, our lending practices,
our dividend policy, our common stock purchase
actions, the manner in which we market our services,
our acquisition activities and our interactions with
foreign regulatory agencies and officials.
fund
to
In particular, we are registered with the Federal
Reserve as a bank holding company pursuant to the
Bank Holding Company Act of 1956. The Bank
Holding Company Act generally limits the activities in
which we and our non-banking subsidiaries may
engage to managing or controlling banks and to
activities considered to be closely related to banking.
As a bank holding company that has elected to be
treated as a financial holding company under the
Bank Holding Company Act, we and some of our non-
banking subsidiaries may also engage in a broader
range of activities considered to be “financial in
nature.” Financial holding company status may be
denied if we and our banking subsidiaries do not
remain well capitalized and well managed or fail to
comply with Community Reinvestment Act
obligations. Currently, under
the Bank Holding
Company Act, we may not be able to engage in new
activities or acquire shares or control of other
businesses.
We are unable to predict what, if any, changes to
the regulatory environment may be enacted by
Congress, both chambers of which are now under
the new presidential
Democratic control, or
administration and what the impact of any such
changes will be on our results of operations or
financial condition, including increased expenses or
changes in the demand for our services or our ability
to engage in transactions to expand our business, or
on the U.S.-domestic or global economies or financial
markets.
the
Moreover,
turnover of
the presidential
administration is expected to result in certain changes
in the leadership and senior staffs of the federal
banking agencies. Such changes are likely to impact
the
rulemaking, supervision, examination and
enforcement priorities and policies of the agencies.
State Street Corporation | 39
The potential impact of any changes in agency
personnel, policies and priorities on the financial
services sector, including us, cannot be predicted at
this time.
We expect that our business will remain subject
to extensive regulation and supervision. Several other
aspects of the regulatory environment in which we
operate, and related risks, are discussed below.
Additional information is provided under "Supervision
and Regulation” in Business in this Form 10-K.
Resolution Planning
We are required to periodically submit a plan for
rapid and orderly resolution in the event of material
financial distress or failure commonly referred to as a
resolution plan or a living will to the Federal Reserve
and the FDIC under Section 165(d) of the Dodd-
Frank Act. Through resolution planning, we seek, in
the event of insolvency, to maintain State Street
Bank’s role as a key infrastructure provider within the
financial system, while minimizing risk to the financial
system and maximizing value for the benefit of our
stakeholders. Significant management attention and
resources are required in an effort to meet regulatory
expectations with respect to resolution planning.
with
TLAC
applicable
In the event of material financial distress or
failure, our preferred resolution strategy is the SPOE
Strategy. Our
including our
resolution plan,
implementation of the SPOE Strategy with a secured
support agreement, involves important risks, including
that: (1) the SPOE Strategy and the obligations under
the related secured support agreement may result in
the recapitalization of and/or provision of liquidity to
State Street Bank and our other material entities and
the commencement of bankruptcy proceedings by the
Parent Company at an earlier stage of financial stress
than might otherwise occur without such mechanisms
in place; (2) an expected effect of the SPOE Strategy,
together
regulatory
requirements, is that our losses will be imposed on
Parent Company shareholders and the holders of
long-term debt and other forms of TLAC securities
currently outstanding or issued in the future by the
Parent Company, as well as on any other Parent
Company creditors, before any of our losses are
imposed on the holders of the debt securities of State
Street Bank or certain of the Parent Company’s other
operating subsidiaries or any of their depositors or
creditors and before U.S. taxpayers are put at risk; (3)
there can be no assurance that there would be
sufficient
to
ensure that State Street Bank and our other material
entities are adequately capitalized
the
triggering of the requirements to provide capital and/
or liquidity under the support agreement; and (4)
there can be no assurance that credit rating agencies,
in response to our resolution plan or the support
agreement, will not downgrade, place on negative
watch or change their outlook on our debt credit
resources available
recapitalization
following
ratings, generally or on specific debt securities.
Additional information about the SPOE Strategy,
including related risks, is provided under "Recovery
and Resolution Planning" in Business in this Form 10-
K.
Systemic Importance
Our qualification in the U.S. as a SIFI, and our
designation by the Financial Stability Board as a G-
SIB, to which certain regulatory capital surcharges
may apply, subjects us to incrementally higher capital
and prudential requirements, increased scrutiny of
our activities and potential additional regulatory
requirements or heightened regulatory expectations
as compared to those applicable to some of the
financial institutions with which we compete as a
custodian or asset manager. This qualification and
designation also has significantly increased, and may
continue to increase, our expenses associated with
regulatory compliance,
including personnel and
systems, as well as implementation and related costs
to enhance our programs.
Global and Non-U.S. Regulatory Requirements
lawsuits,
jurisdictions
fines, penalties,
relating
laundering.
The breadth of our business activities, together
with the scope of our global operations and varying
business practices in relevant jurisdictions, increase
the complexity and costs of meeting our regulatory
compliance obligations, including in areas that are
receiving significant regulatory scrutiny. We are,
therefore, subject to related risks of non-compliance,
including
regulatory
sanctions, difficulties
in obtaining governmental
approvals, limitations on our business activities or
reputational harm, any of which may be significant.
For example, the global nature of our client base
laws and
requires us
to comply with complex
to
regulations of multiple
economic sanctions and money
In
addition, we are required to comply not only with the
U.S. Foreign Corrupt Practices Act, but also with the
applicable anti-corruption laws of other jurisdictions in
which we operate. Further, our global operating
model requires that we comply with information
resiliency and outsourcing oversight
security,
to affiliated
including with respect
requirements,
entities, of multiple jurisdictions and enable our clients
to comply with information security, resiliency and
outsourcing oversight requirements imposed upon
them. Regulatory scrutiny of compliance with these
and other laws and regulations is increasing and may,
in some respects, impede the implementation of our
global operating model that is central to both delivery
of client service requirements and cost efficiency. We
sometimes face inconsistent laws and regulations
across the various jurisdictions in which we operate.
The evolving regulatory landscape may interfere with
our ability to conduct our operations, with our pursuit
of a common global operating model or with our
ability to compete effectively with other financial
State Street Corporation | 40
institutions operating in those jurisdictions or which
may be subject to different regulatory requirements
than apply to us. In particular, non-U.S. regulations
and initiatives that may be inconsistent or conflict with
current or proposed regulations in the U.S. could
create increased compliance and other costs that
would adversely affect our business, operations or
profitability. Geopolitical events such as the U.K.’s exit
from the European Union also have the potential to
increase
the complexity and cost of regulatory
compliance.
the
and
framework
In addition to U.S. regulatory initiatives, we are
further affected by non-U.S. regulatory initiatives,
including the implementation of the finalized Basel
prudential
European
Commission’s Investment Firm Review and Central
Securities Depositories Regulation, as well as
proposals for a review of the AIFM Directive and
proposals under the Capital Markets Union Action
Plan. Recent, proposed or potential regulations in the
U.S. and E.U. with respect to short-term wholesale
funding, such as repurchase agreements or securities
lending, or other non-bank finance activities, could
also adversely affect not only our own operations but
also the operations of the clients to which we provide
services. Concerns
liquidity and
regarding
valuation of prime money market funds and similar
products may
cash
management products we offer. In addition, anti-
competitive, voting power, governance and other
concerns with passive investment strategies continue
to be the subject of legislative and regulatory debate
impact both our asset
which could significantly
management business and
that we
service.
the clients
adversely
impact
the
the
Consequences of Regulatory Environment and
Compliance Risks
regulatory
increase our
Domestic and international regulatory reform
could limit our ability to pursue certain business
opportunities,
capital
requirements, alter the risk profile of certain of our
core activities and impose additional costs on us,
otherwise adversely affect our business, our
consolidated
financial
condition and have other negative consequences,
including, a reduction of our credit ratings. Different
countries may respond to the market and economic
environment in different and potentially conflicting
the cost of
manners, which could
compliance for us.
results of operations or
increase
The evolving regulatory environment, including
changes to existing regulations and the introduction
of new regulations, may also contribute to decisions
we may make to suspend, reduce or withdraw from
existing businesses, activities, markets or initiatives.
In addition to potential lost revenue associated with
any such suspensions, reductions or withdrawals, any
such suspensions, reductions or withdrawals may
result in significant restructuring or related costs or
exposures.
regulatory authorities
If we do not comply with governmental
regulations, we may be subject to fines, penalties,
lawsuits, delays, or difficulties in obtaining regulatory
approvals or restrictions on our business activities or
harm to our reputation, which may significantly and
adversely affect our business operations and, in turn,
results of operations. The
our consolidated
willingness of
impose
meaningful sanctions, and the level of fines and
in connection with regulatory
penalties
violations, have increased substantially since the
2008 financial crisis. Regulatory agencies may, at
times, limit our ability to disclose their findings, related
actions or remedial measures. Similarly, many of our
clients are
regulatory
to
requirements and retain our services in order for us to
assist
legal
in complying with
requirements. Changes in these regulations can
significantly affect the services that we are asked to
provide, as well as our costs.
significant
imposed
subject
those
them
to
Adverse publicity and damage to our reputation
arising from the failure or perceived failure to comply
with legal, regulatory or contractual requirements
could affect our ability to attract and retain clients. If
we cause clients to fail to comply with any regulatory
requirements, we may be liable to them for losses
and expenses that they incur. In recent years,
regulatory oversight and enforcement have increased
substantially,
and
increasing the potential risks associated with our
operations. If this regulatory trend continues, it could
continue to adversely affect our operations and, in
turn, our consolidated results of operations and
financial condition.
additional
imposing
costs
For additional information, see the risk factor
“Our businesses may be adversely affected by
government enforcement and litigation.”
We are subject to enhanced external oversight as
a result of certain agreements entered into in
connection with the resolution of prior regulatory
or governmental matters.
In connection with the resolution of certain
proceedings relating to our having charged six clients
of our transition management business during 2010
and 2011 amounts in excess of the contractual terms,
into a deferred
in January 2017, we entered
prosecution agreement with
the Department of
Justice and the United States Attorney for the DOJ
under which we agreed to retain an independent
compliance and ethics monitor for a term which has
now been extended to 2021 (subject to further
extension) to, among other things, review and monitor
the effectiveness of our compliance controls and
business ethics and make related recommendations,
and in September 2017, we entered into a settlement
State Street Corporation | 41
to
agreement with the SEC that also requires us to
retain an
independent ethics and compliance
consultant. We have retained a monitor who is
fulfilling our obligations under both the deferred
prosecution agreement and the SEC settlement.
Responding
requests entails
the monitor's
significant cost and management attention and we
are, in general, required to implement remediation
plans
the monitor's
any
recommendations. These
recommendations may
require substantial cost and effort to remediate and,
even when consistent with our own control
enhancement objectives, may reflect differences in
approach,
than we may
independently intend. Under the deferred prosecution
agreement we also have a heightened obligation
promptly to report issues involving potential or alleged
fraudulent activities to the DOJ.
timing and
address
cost
of
to
in addition
As a result of the enhanced inspections and
monitoring activities to which we are subject under
these agreements, governmental authorities may
identify areas in which we may need to take actions,
which may be significant, to enhance our regulatory
compliance or risk management practices. Such
remedial actions may entail significant cost,
management attention, and systems development
and such efforts may affect our ability to expand our
business until such remedial actions are completed.
to remedial
These actions may be
measures required by the Federal Reserve and other
financial regulators following examinations as a result
of increased prudential expectations regarding our
compliance programs, culture and risk management.
Our failure to implement enhanced compliance and
risk management procedures in a manner and in a
time
the
applicable regulatory authority could adversely impact
our relationship with such regulatory authority and
could lead to restrictions on our activities or other
sanctions. Moreover, the identification of new or
facts and circumstances suggesting
additional
inappropriate or non-compliant conduct, whether
identified by the monitor or a regulatory authority, in
the course of an inspection, or independently by us
could lead to new governmental proceedings or the
re-opening of matters that were previously resolved.
The presence of the monitor, as well as governmental
rewarding whistleblowing, may also
programs
former
increase
employees alleging
that certain practices are
inconsistent with our legal or regulatory obligations.
instances of current or
to be responsive by
frame deemed
the
Our businesses may be adversely affected by
government enforcement and litigation.
The businesses in which we operate are highly-
regulated and subject to extensive external scrutiny
that may be directed generally to participants in the
businesses or markets in which we are involved or
may be specifically directed at us, including as a
and
regulatory,
governmental
result of whistleblower and qui tam claims. In the
course of our business, we are frequently subject to
various
law
enforcement inquiries, investigative demands and
subpoenas, and from time to time, our clients, or the
government on its own behalf or on behalf of our
clients or others, make claims and take legal action
relating to, among other things, our performance of
our fiduciary, contractual or regulatory responsibilities.
Often, the announcement of any such matters, or of
any settlement of a claim or action, whether it
involves us or others in our industry, may spur the
initiation of similar claims by other clients or
governmental parties. Regulatory authorities have,
and are likely to continue to, initiate cross industry
reviews when a material issue is identified at a
financial institution. Such inquiries involve costs and
management time and may lead to proceedings
relating to our own activities.
the attention of
for disgorgement, demands
Regardless of the outcome of any governmental
enforcement or litigation matter, responding to such
matters is time-consuming and expensive and can
divert
senior management.
Governmental enforcement and litigation matters can
involve claims
for
substantial monetary damages, the imposition of civil
or criminal penalties, and the imposition of remedial
sanctions or other required changes in our business
practices, any of which could result in increased
expenses, loss of client demand for our products or
services, or harm to our reputation. The exposure
associated with any proceedings
that may be
threatened, commenced or filed against us could
have a material adverse effect on our consolidated
results of operations for the period in which we
establish a reserve with respect to such potential
In government
liability or upon our reputation.
settlements since the 2008 financial crisis, the fines
imposed by authorities have increased substantially
and may exceed in some cases the profit earned or
harm caused by the regulatory or other breach. For
example, in connection with the resolution of the
transition management matter, we agreed to pay a
fine of £22.9 million (approximately $37.8 million) to
the U.K. FCA in 2014 and fines of $32.3 million to
each of the DOJ and the SEC in 2017. As a further
example, we paid an aggregate of $575 million in
2016 to resolve a series of investigations and
governmental and private claims alleging that our
indirect foreign exchange rates prior to 2008 were not
adequately disclosed or were otherwise improper.
These matters have also resulted in regulatory focus
on the manner in which we charge clients and related
disclosures. This focus may lead to increased and
prolonged governmental inquiries and client, qui tam
and whistleblower claims associated with the amount
and disclosure of compensation we receive for our
products and services.
State Street Corporation | 42
in connection with
Moreover, U.S. and certain
international
governmental authorities have increasingly brought
criminal actions against financial institutions, and
criminal prosecutors have increasingly sought and
obtained criminal guilty pleas, deferred prosecution
agreements or other criminal sanctions from financial
institutions. For example, in 2017 we entered into a
the U.S.
deferred prosecution agreement with
Department of Justice
the
resolution of the transition management matter, and
such agreement could increase the likelihood that
governmental authorities will seek criminal sanctions
against us in pending or future legal proceedings.
See the risk factor “We are subject to various legal
proceedings relating to the manner in which we have
invoiced certain expenses, and the outcome of such
proceedings could materially adversely affect our
results of operations, or harm our business or
reputation.” Government authorities may also pursue
criminal claims against current or former employees,
and these matters can, among other things, involve
continuing reputational harm to us. For example, four
of our former employees were indicted by U.S.
prosecutors on charges of criminal conspiracy in
connection with their involvement in the transition
management matter. Two of these individuals pled
guilty, and a third was convicted in 2018.
In many cases, we are required or may choose
to report inappropriate or non-compliant conduct to
the authorities, and our failure or delay to do so may
represent an independent regulatory violation or be
treated as an indication of non-cooperation with
governmental authorities. Even when we promptly
report a matter, we may nonetheless experience
regulatory fines, liabilities to clients, harm to our
reputation or other adverse effects. Moreover, our
settlement or other resolution of any matter with any
one or more regulators or other applicable party may
not forestall other regulators or parties in the same or
other jurisdictions from pursuing a claim or other
action against us with respect to the same or a similar
matter.
about
For more
current
information
contingencies relating to legal proceedings, see Note
13 to the consolidated financial statements in this
Form 10-K. The resolution of certain pending or
potential legal or regulatory matters could have a
material adverse effect on our consolidated results of
operations for the period in which the relevant matter
is resolved or an accrual is determined to be required,
on our consolidated financial condition or on our
reputation.
In view of the inherent difficulty of predicting the
outcome of legal and regulatory matters, we cannot
provide assurance as to the outcome of any pending
or potential matter or, if determined adversely against
us, the costs associated with any such matter,
particularly where the claimant seeks very large or
involves
indeterminate damages or where the matter presents
novel legal theories, involves a large number of
parties,
the discretion of governmental
in seeking sanctions or negotiated
authorities
resolution or is at a preliminary stage. We may be
unable to accurately estimate our exposure to the
risks of legal and regulatory contingencies when we
record reserves for probable and estimable loss
contingencies. As a result, any reserves we establish
may not be sufficient to cover our actual financial
exposure. Similarly, our estimates of the aggregate
range of reasonably possible loss for legal and
regulatory contingencies are based upon
then-
available information and are subject to significant
judgment and a variety of assumptions and known
and unknown uncertainties. The matters underlying
the estimated range will change from time to time,
and actual results may vary significantly from the
estimate at any time.
We are subject to various legal proceedings
relating to the manner in which we have invoiced
certain expenses, and the outcome of such
proceedings could materially adversely affect our
results of operations or harm our business or
reputation.
In 2015, we determined we had incorrectly
invoiced clients for certain expenses. We have
reimbursed most of our affected customers for those
expenses, and we have implemented enhancements
to our billing processes. In connection with our
enhancements to our billing processes, we continue
to review historical billing practices and may from
time to time identify additional remediation. In 2017,
we identified an additional area of incorrect expense
billing associated with mailing services
in our
retirement services business. We currently expect the
cumulative total of our payments to customers for
these invoicing errors, including the error in the
retirement services business, to be at least $370
million, all of which has been paid or is accrued.
However, we may identify additional remediation
costs. See the risk factor “Our efforts to improve our
billing processes and practices are ongoing and may
result in the identification of additional billing errors.”
In March 2017, a purported class action was
commenced against us alleging that our invoicing
practices violated duties owed to retirement plan
customers under ERISA.
In addition, we have
received a purported class action demand letter
alleging that our invoicing practices were unfair and
deceptive under Massachusetts law. A class of
customers, or particular customers, may assert that
we have not paid to them all amounts incorrectly
invoiced, and may seek double or treble damages
under Massachusetts law.
We are also cooperating with investigations by
governmental and regulatory authorities on these
State Street Corporation | 43
the
are
registered
matters, including the civil and criminal divisions of
the DOJ and the DOL, which reviews could result in
significant fines or other sanctions, civil and criminal,
against us. In June 2019, we reached an agreement
with the SEC to settle its claims that we violated the
recordkeeping provisions of Section 34(b) of the
Investment Company Act of 1940 and caused
Investment
violations of Section 31(a) of
Company Act and Rules 31a-1(a) and 31a-1(b)
thereunder in connection with our overcharges of
customers which
investment
companies. In reaching this settlement, we neither
admitted nor denied the claims contained in the
SEC’s order, and agreed to pay a civil monetary
penalty of $40 million. Also in June 2019, we reached
the Massachusetts Attorney
an agreement with
General’s office to resolve its claims related to this
matter.
this settlement, we neither
admitted nor denied the claims in the order, and
agreed to pay a civil monetary penalty of $5.5 million.
The costs associated with these settlements were
within our related previously established accruals for
loss contingencies. The SEC and Massachusetts
Attorney General’s office settlements both recognize
that the payment of $48.8 million in disgorgement and
interest is satisfied by our direct reimbursements of
our customers.
In reaching
respect
legal accrual with
In January 2020, the DOJ outlined a framework
for a possible resolution of their review. We are
discussing the terms of a potential settlement of this
matter with the DOJ. Separately, we have inquired of
the DOL as to the status of their review but have not
entered into settlement discussions with the DOL.
There can be no assurance that any settlement with
the DOJ or DOL will be reached on financial or other
terms acceptable to us or at all. The aggregate
amount of penalties that may potentially be imposed
upon us in connection with the resolution of all
outstanding investigations into our historical billing
practices is not currently known. We have established
the pending
a
governmental investigations and civil litigation with
respect to this matter; however, our ultimate liability
with respect to this matter might be significantly in
excess of our current accrual. Government authorities
have significant discretion in criminal and civil matters
as to the fines and other penalties they may seek to
impose. Any resolution of the DOJ and DOL claims
may involve penalties that could be a significant
percentage, or a multiple of, all or a portion of the
overcharge. The severity of such fines or penalties
could take into account factors such as the amount or
duration of our
the
the
government’s or
conduct of our employees, as well as prior conduct
such as that which resulted in our January 2017
deferred prosecution agreement and settlement of
civil claims regarding our indirect FX business.
invoicing and
regulators’ assessment of
incorrect
to
The outcome of any of these proceedings and,
in particular, any criminal sanction could materially
adversely affect our results of operations and could
have significant additional consequences for our
business and reputation.
Our efforts to improve our billing processes and
practices are ongoing and may result in the
identification of additional billing errors.
in
inefficiencies
In 2015, we determined we had incorrectly
invoiced some of our Investment Servicing clients for
certain expenses. At that time, we began the process
of remediating these errors, improving our billing
processes and controls
the asset servicing
business and other businesses, and testing these
improved billing processes and controls. We are
to standardize, enhance, and, where
continuing
necessary, replace and enhance controls and invest
in new billing infrastructure. The objective of this
billing transformation program is to obtain greater
billing accuracy and timeliness. Because of the scale
of our business, identifying and remediating all
weaknesses and
in our billing
processes cannot be
implemented concurrently.
Accordingly, the costs to remediate billing errors
which may be discovered in that process, would likely
be incurred over a period that we are now unable
accurately to determine. As we work through this
process, we have discovered and may continue to
discover areas where we believe our billing
processes need improvement, where we believe we
have made billing errors with respect to particular
customers and categories of fees and expenses, and
where we believe billing arrangements between
ourselves and particular customers should be
clarified. Such discoveries may lead to increased
expense and decreased revenues, the need to
government
remediate
investigations, or litigation that may materially impact
our business, financial results and reputation.
errors,
billing
prior
to
or
loss,
theft,
damage
other
Any
misappropriation or inadvertent disclosure of, or
inappropriate
confidential
information we possess could have an adverse
impact on our business and could subject us to
regulatory actions, litigation and other adverse
effects.
access
the
to,
to maintain
Our businesses and relationships with clients
the
are dependent on our ability
confidentiality of our and our clients' trade secrets
and other confidential information (including client
transactional and holdings data and personal data
about our clients, our clients' clients and our
employees). Unauthorized access, or failure of our
controls with respect to granting access to our
systems, has in the past occurred and may in the
future occur, resulting in theft, loss, damage to or
In
other misappropriation of such
information.
State Street Corporation | 44
in
the
theft,
future
loss, damage
addition, our and our vendors’ personnel have in the
past and may
inadvertently or
deliberately disclose client or other confidential
to other
information. Any
misappropriation or
inadvertent disclosure of
confidential
information could have a material
adverse impact on our competitive position, our
relationships with our clients and our reputation and
could subject us to regulatory inquiries, enforcement
and fines, civil litigation and possible financial liability
or costs. To the extent any of these events involve
personal information, the risks of enhanced regulatory
scrutiny and the potential financial liabilities are
exacerbated, particularly under data protection
regulations such as the GDPR.
Our calculations of credit, market and operational
risk exposures, total RWA and capital ratios for
regulatory purposes depend on data
inputs,
formulae, models, correlations and assumptions
that are subject to change over time, which
changes, in addition to our consolidated financial
results, could materially
risk
exposures, our total RWA and our capital ratios
from period to period.
impact our
To calculate our credit, market and operational
risk exposures, our total RWA and our capital ratios
for regulatory purposes, the Basel III rule involves the
use of current and historical data, including our own
loss data and similar information from other industry
participants, market volatility measures, interest rates
and spreads, asset valuations, credit exposures and
the creditworthiness of our counterparties. These
calculations also involve the use of quantitative
formulae, statistical models, historical correlations
and significant assumptions. We refer to the data,
formulae, models, correlations and assumptions, as
internal processes, as our
well as our related
“advanced systems.” While our advanced systems
are generally quantitative
in nature, significant
components involve the exercise of judgment based
on, among other factors, our and the financial
services industry's evolving experience. Any of these
judgments or other elements of our advanced
systems may not, individually or collectively, precisely
represent or calculate the scenarios, circumstances,
outputs or other results for which they are designed
or intended. Collectively, they represent only our
estimate of associated risk.
In addition, our advanced systems are subject to
update and periodic revalidation in response to
changes in our business activities and our historical
experiences, forces and events experienced by the
market broadly or by individual financial institutions,
changes in regulations and regulatory interpretations
and other factors, and are also subject to continuing
regulatory review and approval. For example, a
significant operational loss experienced by another
financial institution, even if we do not experience a
related loss, could result in a material change in the
output of our advanced systems and a corresponding
material change in our risk exposures, our total RWA
and our capital ratios compared to prior periods. An
operational loss that we experience could also result
in a material change in our capital requirements for
operational risk under the advanced approaches,
depending on the severity of the loss event, its
characterization among
the seven Basel-defined
UOM, and the stability of the distributional approach
for a particular UOM. This change in our capital
requirements could be without direct correlation to the
effects of the loss event or the timing of such effects
on our results of operations. Due to the influence of
changes in our advanced systems, whether resulting
from changes in data inputs, regulation or regulatory
supervision or interpretation, specific to us or more
general market, or individual financial institution-
specific, activities or experiences, or other updates or
factors, we expect that our advanced systems and
our credit, market and operational risk exposures, our
total RWA and our capital ratios calculated under the
Basel III rule will change, and may be volatile, over
time, and that those latter changes or volatility could
be material as calculated and measured from period
to period.
Changes in accounting standards may adversely
affect our consolidated financial statements.
New accounting standards, or changes
to
existing accounting standards, resulting both from
initiatives of the FASB as well as changes in the
interpretation of existing accounting standards
potentially could affect our consolidated results of
operations, cash flows and financial condition. These
changes can materially affect how we record and
report our consolidated results of operations, cash
financial
flows,
information. In some cases, we could elect, or be
required,
to apply a new or revised standard
retroactively, resulting in the revised treatment of
certain transactions or activities, and, in some cases,
the revision of our consolidated financial statements
for prior periods. For additional information regarding
changes in accounting standards, refer to the “Recent
Accounting Developments” section of Note 1 to the
consolidated financial statements in this Form 10-K.
financial condition and other
in
tax
Changes
laws, rules or regulations,
challenges to our tax positions with respect to
the
historical
composition of our pre-tax earnings may increase
our effective tax rate and thus adversely affect
our consolidated financial statements.
transactions, and changes
in
Our businesses can be directly or indirectly
affected by new tax legislation, the expiration of
existing tax laws or the interpretation of existing tax
federal and state
laws worldwide. The U.S.
and
governments,
including Massachusetts,
State Street Corporation | 45
jurisdictions around the world continue to review
proposals to amend tax laws, rules and regulations
applicable to our businesses that could have a
negative impact on our capital or after-tax earnings.
In the normal course of our business, we are subject
to review by U.S. and non-U.S. tax authorities. A
review by any such authority could result in an
increase in our recorded tax liability. In addition to the
aforementioned risks, our effective
is
dependent on the nature and geographic composition
of our pre-tax earnings and could be negatively
affected by changes in these factors.
tax rate
The market transition away from broad use of the
London Interbank Offered Rate (LIBOR) as an
interest rate benchmark may impose additional
costs on us and may expose us to increased
operational, model and financial risk.
Globally, regulators have advised large banks to
assess the risks and to prepare for transition from
LIBOR to alternative rates ahead of year end 2021.
Our financial performance depends, in part, on our
ability to adapt to market changes promptly, while
avoiding increased related expenses or operational
risks and uncertainties are
errors. Substantial
associated with the market transition away from the
use of LIBOR as a critical interest rate benchmark
used to determine amounts payable under, and the
value of, financial instruments and contracts.
impact
Due to our dependencies on LIBOR, the failure
or inability to timely plan and implement a LIBOR
transition program to maintain operational continuity
for our clients,
and minimize economic
ourselves and other stakeholders could negatively
impact our business and
financial performance.
Those dependencies include LIBOR-based securities
and loans held in our investment portfolio, LIBOR-
based preferred stock and long-term debt issued by
us and LIBOR-based client fee schedules and deposit
pricing. Also, our internal models which support
decision making and risk management will require
adjustments, which may cause weaknesses in the
underlying model, inadequate assumptions or lead to
reliance on poor or inaccurate data. Assets held by
our customers in their investment portfolios or in the
investment portfolios we manage for others have
LIBOR-based
to enhance our
processes and systems to account for the new
alternative rates-based instruments as they come to
market, the transition of LIBOR-based instruments to
their fallback language and uncertainty as to how
such instruments should be valued where such
fallback language is unclear. These process and
systems requirements could adversely impact our
business, which in some instances is dependent on
critical inputs from third parties, who themselves must
timely adapt to the market changes and failure to
implement the terms of those instruments in a
manner consistent with customer expectation could
terms. We need
lead to disputes and operational issues. Failure or
perceived failure to adequately prepare for LIBOR
transition could affect our ability to attract and retain
clients. Uncertainty relative to external developments
necessary for the market transition away from LIBOR
but outside of our control could further increase the
costs and risks of the transition for us or our
subsidiaries and have an adverse impact on our
operational and financial performance.
Operational Risks
Our controls and procedures may fail or be
circumvented, our risk management policies and
procedures may be inadequate, and operational
risks could adversely affect our consolidated
results of operations.
technology
information
established
trading or
committing
circumventing
to exceed
limitations,
We have in the past failed and may in the future
fail to identify and manage risks related to a variety of
aspects of our business, including, but not limited to
risk,
cyber-security,
operational risk and resiliency, interest rate risk,
foreign exchange risk, trading risk, fiduciary risk, legal
and compliance risk, liquidity risk and credit risk. We
have adopted various controls, procedures, policies
and systems to monitor and manage risk. We cannot
provide assurance that those controls, procedures,
policies and systems are or will be adequate to
identify and manage internal and external risks,
including risks related to service providers, in our
various businesses. The risk of individuals, either
employees or contractors, engaging
in conduct
harmful or misleading to clients or to us, such as
control
consciously
investment
mechanisms
management
fraud or
improperly selling products or services to clients, is
particularly challenging to manage through a control
framework. In addition, we are subject to increased
resiliency risk, requiring continuous reinvestment,
enhancement and
in and of our
information technology and operational infrastructure,
controls and personnel which may not be effectively
or timely deployed or integrated. Moreover, the
financial and reputational impact of control or conduct
failures can be significant. Persistent or repeated
issues with
information
to
technology and operational resiliency or individual
conduct have raised and may in the future raise
concerns among regulators regarding our culture,
governance and control environment. There can be
no assurance that our efforts to address such risks
will be effective. While we seek to contractually limit
our financial exposure to operational risk, the degree
of protection that we are able to achieve varies, and
our potential exposure may be greater than the
revenue we anticipate that we will earn from servicing
our clients.
improvement
controls,
respect
State Street Corporation | 46
infrastructure and
In addition, our businesses and the markets in
which we operate are continuously evolving. We will
need to make additional investments to develop the
to enhance our
operational
compliance and risk management capabilities to
support these businesses, which may increase the
operating expenses of such businesses. Moreover,
we may fail to identify or fully understand the
implications of changes in our businesses or the
financial markets and fail to adequately or timely
enhance our risk
those
framework
changes. To the extent that our risk framework is
ineffective, either because it fails to keep pace with
changes
financial markets, regulatory or
industry requirements, technology and cyber-security
developments, our businesses, our counterparties,
clients or service providers or for other reasons, we
could incur losses, suffer reputational damage or find
ourselves out of compliance with applicable
regulatory or contractual mandates or expectations,
and subject to regulatory inquiry or action against us.
to address
the
in
including
research,
trading services and
leading provider of services
Operational risk is inherent in all of our business
activities. As a
to
institutional investors, we provide a broad array of
investment
services,
management,
investment
servicing that expose us to operational risk. In
addition, these services generate a broad array of
complex and specialized servicing, confidentiality and
fiduciary requirements, many of which involve the
opportunity for human, systems or process errors. We
face the risk that the control policies, procedures and
systems we have established to comply with our
operational or security requirements will fail, will be
inadequate or will become outdated. We also face the
potential for loss resulting from inadequate or failed
supervision or
internal processes, employee
monitoring mechanisms, service-provider processes
or other systems or controls, which could materially
affect our future consolidated results of operations.
Given the volume and magnitude of transactions we
process on a daily basis, operational losses represent
a potentially significant financial risk for our business.
Operational errors that result in us remitting funds to
a failing or bankrupt entity may be irreversible, and
may subject us to losses.
including
functions,
We may also be subject to disruptions from
external events that are wholly or partially beyond our
control, which could cause delays or disruptions to
operational
information
processing and financial market settlement functions.
In addition, our clients, vendors and counterparties
could suffer from such events. Should these events
affect us, or the clients, vendors or counterparties
with which we conduct business, our consolidated
results of operations could be negatively affected.
When we record balance sheet accruals for probable
to
and estimable
loss contingencies
related
operational losses, we may be unable to accurately
estimate our potential exposure, and any accruals we
establish to cover operational losses may not be
sufficient to cover our actual financial exposure,
which could have a material adverse effect on our
consolidated results of operations.
to non-U.S.
Cost shifting
jurisdictions and
increased
outsourcing may expose us
operational risk and reputational harm and may
not result in expected cost savings.
to
regarding
vendors
in
We manage expenses by migrating certain
business processes and business support functions
to lower-cost geographic locations, such as India,
Poland and China, and by outsourcing to vendors and
joint ventures in various jurisdictions. This effort
exposes us to the risk that we may not maintain
service quality, control and effective management or
business resiliency within these operations during
and after transitions. These migrations also involve
risks that our outsourcing vendors or joint ventures
may not comply with their servicing and other
contractual obligations to us, including with respect to
indemnification and information security, and to the
risk that we may not satisfy applicable regulatory
responsibilities
the management and
oversight of outsourcing providers, joint ventures and
other third parties. Our geographic footprint also
exposes us to the relevant macroeconomic, political,
legal and similar risks generally involved in doing
business in the jurisdictions in which we establish
lower-cost locations or joint ventures or in which our
operations,
outsourcing
particularly
locations where we have a
concentration of our operational activities, such as
India, Poland and China. The increased elements of
risk that arise from certain operating processes being
conducted in some jurisdictions could lead to an
increase
in reputational risk. During periods of
transition of operations, greater operational risk and
client concerns exist with respect to maintaining a
high level of service delivery and business resiliency.
The extent and pace at which we are able to move
functions to lower-cost locations, joint ventures and
outsourcing providers may also be affected by
political, regulatory and client acceptance issues,
including with respect to data use, storage and
security. Such relocation or outsourcing of functions
also entails costs, such as technology, real estate and
restructuring expenses, which may offset or exceed
the expected financial benefits of the relocation or
outsourcing. In addition, the financial benefits of
lower-cost
locations and of outsourcings may
diminish over time or could be offset in the event that
the U.S. or other jurisdictions impose tax, trade
barrier or other measures which seek to discourage
the use of lower cost jurisdictions.
locate
their
State Street Corporation | 47
to
our
access
Any failures of or damage to, attack on or
unauthorized
information
technology systems or facilities or disruptions to
the
our continuous operations,
systems, facilities or operations of third parties
with which we do business, such as resulting
from cyber-attacks, could result in significant
costs, reputational damage and limits on our
ability to conduct our business activities.
including
of
services
from abroad, resulting
Our businesses depend on
information
technology infrastructure, both internal and external,
to, among other things, record and process a large
volume of increasingly complex transactions and
other data, in many currencies, on a daily basis,
across numerous and diverse markets and
jurisdictions and to maintain that data securely. In
recent years, several financial services firms have
launched both
suffered successful cyber-attacks
the
domestically and
or
disruption
misappropriation of sensitive or private data and
reputational harm. We also have been subjected to
cyber-attacks, and although we have not to our
knowledge suffered a material breach or suspension
of our systems, it is possible that we could suffer such
a breach or suspension in the future or that we may
be unaware of a prior attack. Cyber-threats are
sophisticated and continually evolving. We may not
implement effective systems and other measures to
effectively identify, detect, prevent, mitigate, recover
from or remediate the full diversity of cyber-threats or
improve and adapt such systems and measures as
such threats evolve and advance.
in
loss
clients,
to
to
systems
technology
loss of access
loss, unauthorized access
A cyber-security incident, or a failure to protect
our
and
infrastructure,
information and our clients and others' information
against cyber-security threats, could result in the
theft,
to, disclosure,
misuse or alteration of information, system failures or
outages or
information. The
expectations of our clients and regulators with respect
to the resiliency of our systems and the adequacy of
our control environment with respect to such systems
has and is expected to increase as the risk of cyber-
attacks, which is presently elevated due to the current
work-from-home environment, and the consequences
of those attacks become more pronounced. We may
not be successful in meeting those expectations or in
our efforts to identify, detect, prevent, mitigate and
respond to such cyber-incidents or for our systems to
recover in a manner that does not disrupt our ability
to provide services to our clients. The failure to
maintain an adequate technology infrastructure and
applications with effective cyber-security controls
could impact operations, adversely affect our financial
results, result in loss of business, damage our
reputation or impact our ability to comply with
regulatory obligations, leading to regulatory fines and
sanctions. We may be required to expend significant
additional
investigate or
remediate vulnerabilities or other exposures arising
from cyber-security threats.
to modify,
resources
Our
computer,
communications,
data
processing, networks, backup, business continuity,
disaster recovery or other operating, information or
technology systems, facilities and activities have
suffered and in the future may suffer disruptions or
otherwise fail to operate properly or become disabled,
overloaded or damaged as a result of a number of
factors, including events that are wholly or partially
beyond our control, which can adversely affect our
ability to process transactions, provide services or
maintain systems availability, maintain information
internal controls or
security, compliance and
otherwise appropriately conduct our business
activities. For example, in addition to cyber-attacks,
there could be sudden increases in transaction or
telecommunications
data volumes, electrical or
outages, natural disasters, or employee or contractor
error or malfeasance. Third parties may also attempt
to place individuals within State Street or fraudulently
induce employees, vendors, clients or other users of
our systems to disclose sensitive information in order
to gain access to our data or that of our clients or
other parties. Any such disruptions or failures may
require us, among other things, to reconstruct lost
data (which may not be possible), reimburse our
clients' costs associated with such disruption or
failure, result in loss of client business or damage our
information technology infrastructure or systems or
those of our clients or other parties. While we have
not in the past suffered material harm or other
adverse effects from such disruptions or failures, we
may not successfully prevent, respond to or recover
from such disruptions or failures in the future, and any
such disruption or failure could adversely impact our
ability
to conduct our businesses, damage our
reputation and cause losses, potentially materially.
interact,
technology
The third parties with which we do business,
which facilitate our business activities, to whom we
outsource operations or other activities, from whom
we receive products or services or with whom we
financial
otherwise engage or
including
infrastructure and
intermediaries and
service providers, are also susceptible
the
foregoing risks (including the third parties with which
they are similarly interconnected or on which they
otherwise rely), and our or their business operations
and activities have been and may in the future be
adversely affected, perhaps materially, by failures,
terminations, errors or malfeasance by, or attacks or
constraints on, one or more financial, technology,
infrastructure
or
intermediaries with whom we or
they are
interconnected or conduct business.
government
institutions
or
to
State Street Corporation | 48
computer
viruses, malicious
In particular, we, like other financial services
firms, will continue to face increasing cyber-threats,
including
code,
distributed denial of service attacks, phishing attacks,
ransomware, hacker attacks, limited availability of
services, unauthorized access, information security
breaches or employee or contractor error or
malfeasance that could result in the unauthorized
release, gathering, monitoring, misuse,
loss or
destruction of our, our clients' or other parties'
confidential, personal, proprietary or other information
or otherwise disrupt, compromise or damage our or
our clients' or other parties' business assets,
operations and activities. These and similar types of
threats are occurring globally with greater frequency
and intensity, and we may not anticipate or implement
effective preventative measures against, or identify
and detect one or more, such threats, particularly
because the techniques used change frequently or
may not be recognized until after they are launched.
Our status as a global SIFI likely increases the risk
that we are targeted by such cyber-security threats. In
addition, some of our service offerings, such as data
warehousing, may also increase the risk we are, and
the consequences of being, so targeted. We may be
required to expend significant additional resources to
modify, investigate or remediate vulnerabilities or
other exposures arising from cyber-security threats.
We therefore could experience significant related
costs and legal and financial exposures, including lost
or constrained ability to provide our services or
maintain systems availability to clients, regulatory
inquiries, enforcements, actions and fines, litigation,
damage to our reputation or property and enhanced
competition.
(2)
Due to our dependence on technology and the
important role it plays in our business operations, we
are attempting to improve and update our information
technology infrastructure, among other things: (1) as
some of our systems are approaching the end of their
useful life, are redundant or do not share data without
reconciliation;
to be more efficient, meet
increasing client and regulatory security, resiliency
and other expectations and support opportunities of
growth; and (3) to enhance resiliency and maintain
business continuity. Updating these systems involves
material costs and often involves implementation,
integration and security risks, including risks that we
the market or
may not adequately anticipate
technological trends, regulatory expectations or client
needs or experience unexpected challenges that
could cause financial, reputational and operational
harm. Failing to properly respond to and invest in
changes and advancements in technology can limit
our ability to attract and retain clients, prevent us from
offering similar products and services as those
offered by our competitors, impair our ability to
maintain continuous operations, inhibit our ability to
meet regulatory requirements and subject us to
regulatory inquires.
Long-term contracts expose us to pricing and
performance risk.
We
involve
frequently enter
in our
into
long-term client
servicing contracts
Investment Servicing
business. These include outsourcing and other core
services contracts and can
information
technology development. These arrangements
generally set forth our fee schedule for the term of the
contract and, absent a change
in service
requirements, do not permit us to re-price the contract
for changes in our costs or for market pricing. The
long-term contracts for these relationships require, in
some cases, considerable up-front investment by us,
including technology and conversion costs, and carry
the risk that pricing for the products and services we
provide might not prove adequate
to generate
expected operating margins over the term of the
contracts.
The profitability of these contracts is largely a
function of our ability to accurately calculate pricing
for our services, efficiently assume our contractual
responsibilities in a timely manner, control our costs
and maintain the relationship with the client for an
adequate period of time to recover our up-front
investment. Our estimate of the profitability of these
arrangements can be adversely affected by declines
in or inaccurate projections of the assets under the
clients' management, whether due
to general
declines in the securities markets or client-specific
these
issues.
arrangements may be based on our ability to cross-
sell additional services to these clients, and we may
be unable to do so. In addition, such contracts may
permit early termination or reduction in services in the
event that certain service levels are not met, which
termination or service reduction may result in loss of
upfront investment in onboarding the client.
the profitability of
In addition,
Performance risk exists in each contract, given
our dependence on successful conversion and
implementation onto our own operating platforms of
the service activities provided. Our failure to meet
specified service levels or implementation timelines
may also adversely affect our revenue from such
arrangements, or permit early termination of the
contracts by the client. If the demand for these types
of services were to decline, we could see our revenue
decline.
Our businesses may be negatively affected by
adverse publicity or other reputational harm.
Our relationship with many of our clients is
predicated on our reputation as a fiduciary and a
service provider that adheres to the highest standards
of ethics, service quality and regulatory compliance,
as well as a leading provider of the products and
services we offer. Adverse publicity, regulatory actions
State Street Corporation | 49
or fines, litigation, operational failures, loss of client
opportunities or market share or the failure to meet
client expectations or fiduciary or other obligations
could materially and adversely affect our reputation,
our ability
to attract and retain clients or key
employees or our sources of funding for the same or
other businesses. For example, over the past decade
we have experienced adverse publicity with respect
to our indirect foreign exchange trading, and this
adverse publicity has contributed to a shift of client
volume to other foreign exchange execution methods.
Similarly, governmental actions and reputational
issues in our transition management business in the
U.K. have adversely affected our
transition
management revenue and, with criminal convictions
or guilty pleas of three of our former employees in
2018 and the deferred prosecution agreement we
entered into with the DOJ in early 2017 and the
related SEC settlement, these effects have the
potential to continue. The client invoicing matter we
announced in late 2015 has had similar effects. For
additional information about these matters, see the
risk
factor "Our businesses may be adversely
affected by government enforcement and litigation."
Preserving and enhancing our reputation also
depends on maintaining systems, procedures and
controls that address known risks and regulatory
requirements, as well as our ability to timely identify,
understand and mitigate additional risks that arise
due
the
marketplaces in which we operate, the regulatory
environment and client expectations.
in our businesses and
to changes
We may not be able to protect our intellectual
property, and we are subject to claims of third-
party intellectual property rights.
Our potential inability to protect our intellectual
property and proprietary technology effectively may
allow competitors to duplicate our technology and
products and may adversely affect our ability to
compete with them. To the extent that we do not
protect our intellectual property effectively through
patents, maintaining trade secrets or other means in
all of the jurisdictions in which we operate or market
our products and services, other parties, including
former employees, with knowledge of our intellectual
property may seek to exploit our intellectual property
for their own or others' advantage. In addition, we
may infringe on claims of third-party patents, and we
may face intellectual property challenges from other
parties, including clients or service providers with
whom we may engage
the development or
implementation of other products, services or
solutions or to whose information we may have
access for limited permitted purposes but with whom
we also compete. The risk of such infringement is
“Fintech”
enhanced
to our
environment, particularly with
development of new products and services containing
the current competitive
respect
in
in
significant technology elements and dependencies,
any of which could become the subject of an
infringement claim. We may not be successful in
defending against any such challenges or in obtaining
licenses to avoid or resolve any intellectual property
disputes. Third-party intellectual rights, valid or not,
may also impede our deployment of the full scope of
in all
our products and service capabilities
jurisdictions in which we operate or market our
products and services.
risk
The quantitative models we use to manage our
in
business may contain errors that result
inadequate
inaccurate
valuations or poor business decisions, and
lapses in disclosure controls and procedures or
internal control over financial reporting could
occur, any of which could result in material harm.
assessments,
We use quantitative models to help manage
many different aspects of our businesses. As an input
to our overall assessment of capital adequacy, we
use models to measure the amount of credit risk,
market risk, operational risk, interest rate risk and
liquidity risk we face. During the preparation of our
consolidated financial statements, we sometimes use
models to measure the value of asset and liability
positions for which reliable market prices are not
available. We also use models to support many
different types of business decisions including trading
activities, hedging, asset-and-liability management
and whether
strategy.
Weaknesses in the underlying model, inadequate
limitations,
model assumptions, normal model
inappropriate model use, weaknesses
in model
implementation or poor data quality, could result in
unanticipated and adverse consequences, including
material
loss and material non-compliance with
regulatory requirements or expectations. Because of
our widespread usage of models, potential
weaknesses in our MRM practices pose an ongoing
risk to us.
change business
to
analyses
correlations.
We also may fail to accurately quantify the
magnitude of the risks we face. Our measurement
rely on many assumptions and
methodologies
historical
These
and
assumptions may be incorrect, and the historical
correlations on which we rely may not continue to be
relevant. Consequently, the measurements that we
make for regulatory purposes may not adequately
capture or express the true risk profiles of our
businesses. Moreover, as businesses and markets
evolve, our measurements may not accurately reflect
this evolution. While our risk measures may indicate
sufficient capitalization, they may underestimate the
level of capital necessary to conduct our businesses.
controls and
Additionally, our disclosure
procedures may not be effective
in every
circumstance, and, similarly, it is possible we may
State Street Corporation | 50
identify a material weakness or significant deficiency
in internal control over financial reporting. Any such
lapses or deficiencies may materially and adversely
affect our business and consolidated results of
operations or consolidated financial condition, restrict
our ability to access the capital markets, require us to
expend significant resources to correct the lapses or
legal
deficiencies, expose us
regulatory or
proceedings, subject us
fines, penalties or
judgments or harm our reputation.
to
to
Our reputation and business prospects may be
damaged if our clients incur substantial losses in
investment pools that we sponsor or manage or
are restricted in redeeming their interests in these
investment pools.
in
losses
including
investment
in collective
funds, securities
We manage assets on behalf of clients in
investment
several
forms,
pools, money market
finance
collateral pools, cash collateral and other cash
funds. Our
products and short-term
management of collective investment pools on behalf
of clients exposes us
to reputational risk and
operational losses. If our clients incur substantial
receive
investment
redemptions as in-kind distributions rather than in
cash, or experience significant under-performance
relative to the market or our competitors' products,
our reputation could be significantly harmed, which
harm could significantly and adversely affect the
prospects of our associated business units. Because
we often
investment and operational
decisions and actions over multiple investment pools
to achieve scale, we face the risk that losses, even
small losses, may have a significant effect in the
aggregate.
implement
pools,
these
Within our Investment Management business,
we manage investment pools, such as mutual funds
and collective investment funds that generally offer
our clients the ability to withdraw their investments on
short notice, generally daily or monthly. This feature
requires that we manage those pools in a manner
that takes into account both maximizing the long-term
return on the investment pool and retaining sufficient
liquidity
liquidity
to meet reasonably anticipated
importance of
requirements of our clients. The
maintaining liquidity varies by product type, but it is a
particularly important feature in money market funds
and other products designed to maintain a constant
net asset value of $1.00. In the past, we have
imposed restrictions on cash redemptions from the
agency lending collateral pools, as the per-unit
market value of those funds' assets had declined
below the constant $1.00 the funds employ to effect
purchase and redemption transactions. Both the
decline of the funds' net asset value below $1.00 and
the imposition of restrictions on redemptions had a
significant client, reputational and regulatory impact
the recurrence of such or similar
on us, and
circumstances in the future could adversely impact
our consolidated results of operations and financial
condition. We have also in the past continued to
redemption of units of
process purchase and
investment products designed to maintain a constant
net asset value at $1.00 although the fair market
value of the fund’s assets were less than $1.00. If in
the future we were to continue to process purchases
and redemptions from such products at $1.00 when
the fair market value of our collateral pools' assets is
less than $1.00, we could be exposed to significant
liability.
to consolidate
If higher than normal demands for liquidity from
our clients were to occur, managing the liquidity
requirements of our collective investment pools could
become more difficult. If such liquidity problems were
to recur, our relationships with our clients may be
in certain
adversely affected, and, we could,
circumstances, be
the
required
investment pools into our consolidated statement of
condition; levels of redemption activity could increase;
and our consolidated results of operations and
business prospects could be adversely affected. In
addition, if a money market fund that we manage
were to have unexpected liquidity demands from
investors in the fund that exceeded available liquidity,
the fund could be required to sell assets to meet
those redemption requirements, and selling
the
assets held by the fund at a reasonable price, if at all,
may then be difficult.
Because of the size of the investment pools that
we manage, we may not have the financial ability or
regulatory authority to support the liquidity or other
demands of our clients. Any decision by us to provide
financial support to an investment pool to support our
reputation
in circumstances where we are not
statutorily or contractually obligated to do so could
result in the recognition of significant losses, could
adversely affect the regulatory view of our capital
levels or plans and could, in some cases, require us
into our
to consolidate
consolidated statement of condition. Any failure of the
pools
to meet redemption requests, or under-
performance of our pools relative to similar products
offered by our competitors, could harm our business
and our reputation.
investment pools
the
incur
losses arising
from our
We may
investments
investment funds,
which could be material to our consolidated
results of operations in the periods incurred.
in sponsored
In the normal course of business, we manage
various types of sponsored investment funds through
State Street Global Advisors. The services we provide
to
funds generate
management fee revenue, as well as servicing fees
from our other businesses. From time to time, we
may invest in the funds, which we refer to as seed
these sponsored
investment
State Street Corporation | 51
for
funds
in order
capital,
to establish a
the
performance history for newly launched strategies.
These funds may meet the definition of variable
interest entities, as defined by U.S. GAAP, and if we
are deemed to be the primary beneficiary of these
funds, we may be required to consolidate these funds
in our consolidated financial statements under U.S.
investment
GAAP. The
company accounting rules which prescribe fair value
for the underlying investment securities held by the
funds.
follow specialized
funds
from
realize over
In the aggregate, we expect any financial losses
that we
these seed
time
investments to be limited to the actual amount
invested in the consolidated fund. However, in the
event of a fund wind-down, gross gains and losses of
the fund may be recognized for financial accounting
purposes in different periods during the time the fund
is consolidated but not wholly owned. Although we
expect the actual economic loss to be limited to the
amount invested, our losses in any period for financial
accounting purposes could exceed the value of our
economic interests in the fund and could exceed the
value of our initial seed capital investment.
In instances where we are not deemed to be the
primary beneficiary of the sponsored investment fund,
we do not include the funds in our consolidated
financial statements. Our risk of loss associated with
investment in these unconsolidated funds primarily
represents our seed capital investment, which could
become realized as a result of poor investment
performance. However, the amount of loss we may
recognize during any period would be limited to the
carrying amount of our investment.
Climate change may increase the frequency and
severity of major weather events and could
adversely affect our business operations.
Our businesses and the activities of our clients,
business partners and the financial infrastructure on
which we and they rely could be adversely affected
by major weather events or other disruptions caused
by climate change affecting the regions, countries
and locations in which we or they have operations or
other interests. Potential events or disruptions of this
nature include significant rainfall, flooding, increased
frequency or intensity of wildfires, prolonged drought,
rising sea levels and rising heat index. These events
or disruptions, alone or in combination, also have the
infrastructure and
potential
response capabilities with respect to other weather
events, such as hurricanes and other storms. The
occurrence of any one or more of these events may
negatively affect our or our clients’, business partners’
facilities,
or
operations or personnel or may otherwise disrupt our
or their business activities, including our or their
provision of products and services or the value of our
or their portfolio investments, perhaps materially.
These consequences, including a material reduction
infrastructure providers’
to strain or deplete
financial
in asset values affecting the levels of our AUC/A or
AUM, could materially adversely affect our results of
operations.
In addition, climate change-related
legislative and regulatory initiatives may result in
operational changes and expenditures that could
adversely affect us. Our reputation may also be
damaged if we do not, or are perceived not to,
effectively prepare for the potential business and
operational risks associated with climate change.
We may incur losses as a result of unforeseen
events
terrorist attacks, natural
disasters, the emergence of a new pandemic or
acts of embezzlement.
including
Acts of
terrorism, natural disasters or
the
emergence of a new pandemic could significantly
affect our business. We have instituted disaster
recovery and continuity plans to address risks from
terrorism, natural disasters and pandemic; however,
anticipating or addressing all potential contingencies
is not possible for events of this nature. Acts of
terrorism, either targeted or broad in scope, or natural
disasters could damage our physical facilities, harm
our employees and disrupt our operations. A
pandemic, or concern about a possible pandemic,
could lead to operational difficulties and impair our
ability to manage our business. Acts of terrorism,
natural disasters and pandemics could also
negatively affect our clients, counterparties and
service providers, as well as result in disruptions in
general economic activity and the financial markets.
State Street Corporation | 52
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters is located at State Street Financial Center, One Lincoln Street, Boston, Massachusetts, a 36-
story leased office building. Various divisions of our two lines of business, as well as support functions, occupy
space in this building. We occupy two buildings located in Quincy, Massachusetts, one of which we own and one of
which we lease, along with the Channel Center, another leased office building located in Boston, all of which
function as our principal facilities.
We occupy a total of approximately 6.5 million square feet of office space and related facilities worldwide, of
which approximately 5.5 million square feet are leased. The following table provides information on certain of our
office space and related facilities:
Principal Properties(1)
U.S. and Canada:
State Street Financial Center
Channel Center
District Avenue
Heritage Drive
John Adams Building
Grafton Data Center
Westborough Data Center
Summer Street
Pennsylvania Avenue
Adelaide Street East
Europe, Middle East and Africa:
Churchill Place
Sir John Rogerson's Quay
Via Ferrante Aporti
Kirchberg
Titanium Tower
BIG
CBK
Asia Pacific:
San Dun
Tian Tang
Ecoworld 6B
Ecoworld 7
Knowledge City Salarpuria
City
Boston
Boston
Burlington
Quincy
Quincy
Grafton
Westborough
Stamford
Kansas City
Toronto
London
Dublin
Milan
State/
Country
MA
MA
MA
MA
MA
MA
MA
CT
MO
Canada
England
Ireland
Italy
Luxembourg
Luxembourg
Gdansk
Krakow
Krakow
Hangzhou
Hangzhou
Bangalore
Bangalore
Hyderabad
Poland
Poland
Poland
China
China
India
India
India
Owned/
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
(1) We lease other properties in the above regions which consists of 41 locations in the U.S. and Canada, 29 locations in Europe, Middle East and Africa (EMEA) and
38 locations in Asia Pacific.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item is provided under "Legal and Regulatory Matters" in Note 13 to the
consolidated financial statements in this Form 10-K, and is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
State Street Corporation | 53
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table presents certain information with respect to each of our executive officers as of
February 19, 2021.
Name
Ronald P. O'Hanley
Eric W. Aboaf
Ian W. Appleyard
Francisco Aristeguieta
Andrew J. Erickson
Kathryn M. Horgan
Andrew P. Kuritzkes
Louis D. Maiuri
David C. Phelan
Michael L. Richards
Cyrus Taraporevala
Age
Position
64 Chairman, President and Chief Executive Officer
56
56
55
51
55
60
56
63
62
54
Executive Vice President and Chief Financial Officer
Executive Vice President, Global Controller and Chief Accounting Officer
Executive Vice President and Chief Executive Officer of State Street Institutional Services
Executive Vice President, Chief Productivity Officer and Head of International
Executive Vice President and Chief Human Resources and Citizenship Officer
Executive Vice President and Chief Risk Officer
Executive Vice President and Chief Operating Officer
Executive Vice President, General Counsel and Secretary
Executive Vice President and Chief Administrative Officer
President and Chief Executive Officer, State Street Global Advisors
All executive officers are appointed by the Board
of Directors and hold office at the discretion of the
Board. No family relationships exist among any of our
directors and executive officers.
Mr. O'Hanley joined State Street in April 2015
and since January 1, 2019 has served as the
President and Chief Executive Officer. He was
appointed Chairman of the Board effective January 1,
2020. Prior to this role Mr. O'Hanley served as
President and Chief Operating Officer from November
to December 2018 and served as Vice
2017
Chairman from January 1, 2017 to November 2017.
the Chief Executive Officer and
He served as
President of State Street Global Advisors,
the
investment management arm of State Street
Corporation, from April 2015 to November 2017. Prior
to joining State Street, Mr. O'Hanley was president of
Asset Management & Corporate Services for Fidelity
Investments, a financial and mutual fund services
corporation, from 2010 to February 2014. From 1997
to 2010, Mr. O'Hanley served in various positions at
Bank of New York Mellon, a global banking and
financial services corporation, serving as president
and chief executive officer of BNY Asset Management
in Boston from 2007 to 2010.
Mr. Aboaf joined State Street in December 2016
as Executive Vice President and has served as
Executive Vice President and Chief Financial Officer
since February 2017. Prior to joining State Street, Mr.
Aboaf served as chief financial officer of Citizens
financial services and retail
Financial Group, a
banking firm, from April 2015 to December 2016, with
responsibility for all finance functions and corporate
development. From 2003 to March 2015, he served in
several senior management positions for Citigroup, a
global investment banking and financial services
corporation, including as global treasurer and as the
chief financial officer of the institutional client group,
which included the custody business.
Mr. Appleyard joined State Street in May 2018
as Executive Vice President, Global Controller and
Chief Accounting Officer. Prior to joining State Street,
Mr. Appleyard served as managing director in group
finance for Credit Suisse, a provider of financial
services, from May 2013 to April 2018 and held
several senior management positions with Credit
Suisse after joining in September 2008. Prior to
Credit Suisse, Mr. Appleyard held senior positions at
HSBC and JPMorgan.
Mr. Aristeguieta joined State Street in July 2019
and since June 2020 has served as Chief Executive
Officer of State Street Institutional Services. Prior to
this role, he served as Executive Vice President and
Chief Executive Officer of International Business from
July 2019 to June 2020. Prior to joining State Street,
Mr. Aristeguieta was Chief Executive Officer of
Citigroup Asia, an international investment banking
and financial services provider, from June 2015 to
June 2019. Prior to that role, he served as Chief
Executive Officer of Citigroup Latin America from
January 2013 to June 2015 and before that he led
in Latin
Citigroup’s Transaction Services Group
America encompassing securities servicing, trade
and cash management, and served as vice chairman
of Banco de Chile.
Mr. Erickson joined State Street in April 1991
and since June 2020 has served as Executive Vice
President, Chief Productivity Officer and head of
State Street's International business. Prior to this role,
he served as Executive Vice President and head of
the Global Services business from November 2017 to
June 2020. Prior to this role and commencing in June
2016, he served as Executive Vice President and
head of
the
Investment Services business
Americas. Prior to that role, Mr. Erickson was the
head of the Global Services business in Asia Pacific
from April 2014 to June 2016 and prior to that was
head of North Asia for Global Services from 2010 to
April 2014. Mr. Erickson has also held several other
in
State Street Corporation | 54
positions within State Street during his over 25 years
with State Street.
their Banking Capital Markets practice in the United
States.
Ms. Horgan joined State Street in April 2009 and
has served as Executive Vice President and Chief
Human Resources and Citizenship Officer since
March 2017. Prior to this role, she served as Chief
Operating Officer for State Street's Global Human
Resources division from 2011 to March 2017 and
since 2012 has served as an Executive Vice
President. Prior to 2011, Ms. Horgan served as the
Senior Vice President of Human Resources for State
Street Global Advisors. Before joining State Street,
Ms. Horgan was the Executive Vice President of
human resources for Old Mutual Asset Management,
a
asset
management company, from 2006 to 2009.
diversified multi-boutique
global,
Mr. Kuritzkes joined State Street in 2010 as
Executive Vice President and Chief Risk Officer. Prior
to joining State Street, Mr. Kuritzkes was a partner at
Oliver, Wyman & Company, an
international
management consulting firm, and led the firm’s Public
Policy practice in North America. He joined Oliver,
Wyman & Company in 1988, was a managing
director in the firm’s London office from 1993 to 1997,
and served as vice chairman of Oliver, Wyman &
Company globally
firm’s
acquisition by MMC in 2003. From 1986 to 1988, he
worked as an economist and lawyer for the Federal
Reserve Bank of New York.
from 2000 until
the
Mr. Maiuri joined State Street in October 2013
and since February 2019 has served as Executive
Vice President and Chief Operating Officer. Prior to
this role, Mr. Maiuri served as Executive Vice
President and head of State Street Global Markets
from June 2016 to February 2019 and head of State
Street Global Exchange from July 2015 to January
2017. From 2013 to July 2015, he led State Street's
Securities Finance division. Before joining State
Street, Mr. Maiuri served as executive vice president
and deputy chief executive officer of asset servicing
at BNY Mellon, a global banking and financial
services corporation, from 2009 to 2013.
Mr. Phelan joined State Street in 2006 as
Executive Vice President and General Counsel. In
responsibilities were
July 2020, Mr. Phelan’s
expanded to include State Street’s regulatory, security
and corporate administration functions globally. He
also serves as State Street’s Corporate Secretary.
Prior to joining State Street, Mr. Phelan served as a
senior partner at Wilmer Cutler Pickering Hale and
Dorr LLP from 1993 to 2006.
Mr. Richards joined State Street in June 2014
and since April 2020 has served as Executive Vice
President and Chief Administrative Officer. Prior to
that role, he served as Executive Vice President and
General Auditor from June 2014 to April 2020. Prior to
joining State Street, Mr. Richards was a partner at
Ernst & Young and was responsible for managing
Mr. Taraporevala joined State Street in April
2016 and since November 2017 has served as
President and Chief Executive Officer of State Street
Global Advisors. He
joined State Street Global
Advisors as Executive Vice President and Global
Head of Product and Marketing. Prior to joining State
Street Global Advisors, Mr. Taraporevala was the
head of Retail Managed Accounts and Life Insurance
& Annuities for Fidelity Investments from 2012 to
October 2015. Prior to that, Mr. Taraporevala held
senior
roles at BNY Mellon Asset
Management, including executive director of North
American distribution.
leadership
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS
EQUITY
AND
SECURITIES
PURCHASES OF
ISSUER
MARKET FOR REGISTRANT'S COMMON EQUITY
Our common stock is listed on the New York
Stock Exchange under the ticker symbol STT. There
were 2,295 shareholders of record as of January 31,
2021.
In June 2019, our Board approved a common
stock purchase program authorizing the purchase of
up to $2.0 billion of our common stock from July 1,
2019 through June 30, 2020 (the 2019 Program). On
March 16, 2020, we, along with the other U.S. G-
SIBs, suspended common share repurchases and
maintained this suspension through the fourth quarter
of 2020 in response to the COVID-19 pandemic. This
suspension was consistent with limitations imposed
by the Federal Reserve beginning in the second
quarter of 2020. As a result, we had no repurchases
of our common stock in the second, third or fourth
quarters of 2020. In December 2020, the Federal
Reserve issued results of the 2020 resubmission
stress tests and authorized us to continue to pay
common stock dividends at current levels and to
resume repurchasing common shares in the first
limitations
quarter of 2021, subject
(together with common stock dividends) based
primarily on average 2020 quarterly net income. In
January 2021, our Board authorized a share
repurchase program for the purchase of up to
$475 million of our common stock through March 31,
2021. Stock purchases may be made using various
types of mechanisms,
including open market
purchases or transactions off market, and may be
made under Rule 10b5-1 trading programs. The
timing of stock purchases, types of transactions and
number of shares purchased will depend on several
including market conditions, our capital
factors,
position, our financial performance and investment
to certain
State Street Corporation | 55
opportunities. Our common stock purchase program
does not have specific price targets and may be
suspended at any time. We may employ third-party
broker/dealers to acquire shares on the open market
in connection with our common stock purchase
programs. The common stock purchase program
does not have specific price targets and may be
suspended at any time.
Additional information about our common stock,
including Board authorization with
to
purchases by us of our common stock, is provided
in our
under "Capital"
Management's Discussion and Analysis and in Note
15 to the consolidated financial statements in this
Form 10-K, and is incorporated herein by reference.
in “Financial Condition”
respect
RELATED STOCKHOLDER MATTERS
As a bank holding company, our Parent
Company is a legal entity separate and distinct from
its principal banking subsidiary, State Street Bank,
and its non-banking subsidiaries. The right of the
Parent Company to participate as a shareholder in
any distribution of assets of State Street Bank upon
its liquidation, reorganization or otherwise is subject
to the prior claims by creditors of State Street Bank,
including obligations for federal funds purchased and
securities sold under repurchase agreements and
deposit liabilities.
to
the provisions of
Payment of dividends by State Street Bank is
subject
the Massachusetts
banking law, which provide that State Street Bank's
Board of Directors may declare, from State Street
Bank's "net profits," as defined below, cash dividends
annually, semi-annually or quarterly (but not more
frequently) and can declare non-cash dividends at
any time. Under Massachusetts banking law, for
the amount of cash
purposes of determining
dividends that are payable by State Street Bank, “net
profits” is defined as an amount equal to the
remainder of all earnings from current operations plus
actual recoveries on loans and investments and other
assets, after deducting from the total thereof all
current operating expenses, actual losses, accrued
dividends on preferred stock, if any, and all federal
and state taxes.
No dividends may be declared, credited or paid
so long as there is any impairment of State Street
Bank's capital stock. The approval of
the
Massachusetts Commissioner of Banks is required if
the total of all dividends declared by State Street
Bank in any calendar year would exceed the total of
its net profits for that year combined with its retained
net profits for the preceding two years, less any
required transfer to surplus or to a fund for the
retirement of any preferred stock.
Under Federal Reserve
the
approval of the Federal Reserve would be required
for the payment of dividends by State Street Bank if
regulations,
two calendar years. For
the total amount of all dividends declared by State
Street Bank in any calendar year, including any
proposed dividend, would exceed the total of its net
income for such calendar year as reported in State
Street Bank's Consolidated Reports of Condition and
Income for a Bank with Domestic and Foreign Offices
Only - FFIEC 031, commonly referred to as the “Call
Report,” as submitted through the Federal Financial
Institutions Examination Council and provided to the
Federal Reserve, plus its “retained net income” for
the preceding
these
purposes, “retained net income,” as of any date of
determination, is defined as an amount equal to State
Street Bank's net income (as reported in its Call
Reports for the calendar year in which retained net
income is being determined) less any dividends
declared during such year. In determining the amount
of dividends that are payable, the total of State Street
Bank's net income for the current year and its
retained net income for the preceding two calendar
years is reduced by any net losses incurred in the
current or preceding two-year period and by any
required transfers to surplus or to a fund for the
retirement of preferred stock.
Prior Federal Reserve approval also must be
obtained if a proposed dividend would exceed State
Street Bank's “undivided profits” (retained earnings)
as reported in its Call Reports. State Street Bank may
include in its undivided profits amounts contained in
its surplus account, if the amounts reflect transfers of
undivided profits made in prior periods and if the
Federal Reserve's approval for the transfer back to
undivided profits has been obtained.
Under the PCA provisions adopted pursuant to
the FDIC Improvement Act of 1991, State Street Bank
may not pay a dividend when it is deemed, under the
PCA framework, to be under-capitalized, or when the
payment of the dividend would cause State Street
Bank to be under-capitalized. If State Street Bank is
under-capitalized for purposes of the PCA framework,
it must cease paying dividends for so long as it is
deemed to be under-capitalized. Once earnings have
begun to improve and an adequate capital position
has been restored, dividend payments may resume in
accordance with federal and state statutory limitations
and guidelines.
State Street Corporation | 56
Currently, any payment of future common stock dividends by our Parent Company to its shareholders is
subject to the review of our capital plan by the Federal Reserve in connection with its CCAR process. Information
about dividends declared by our Parent Company and dividends from our subsidiary banks is provided under
"Capital" in “Financial Condition” in our Management's Discussion and Analysis, and in Note 15 to the consolidated
financial statements in this Form 10-K, and is incorporated herein by reference. Future dividend payments of State
Street Bank and our non-banking subsidiaries cannot be determined at this time. In addition, refer to “Capital
Planning, Stress Tests and Dividends” in "Supervision and Regulation" in Business in this Form 10-K and the risk
factor “Our business and capital-related activities, including our ability to return capital to shareholders and
repurchase our capital stock, may be adversely affected by our implementation of regulatory capital and liquidity
standards that we must meet or in the event our capital plan or post-stress capital ratios are determined to be
insufficient as a result of regulatory capital stress testing” in Risk Factors in this Form 10-K.
Information about our equity compensation plans is in Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters, and in Note 18 to the consolidated financial statements in this Form
10-K, and is incorporated herein by reference.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The graph presented below compares the cumulative total shareholder return on our common stock to the
cumulative total return of the S&P 500 Index, the S&P Financial Index and the KBW Bank Index over a five-year
period. The cumulative total shareholder return assumes the investment of $100 in our common stock and in each
index on December 31, 2015. It also assumes reinvestment of common stock dividends.
The S&P Financial Index is a publicly available, capitalization-weighted index, comprised of 65 of the Standard
& Poor’s 500 companies, representing 25 diversified financial services companies, 22 insurance companies and 18
banking companies. The KBW Bank Index is a modified cap-weighted index consisting of 24 exchange-listed
stocks, representing national money center banks and leading regional institutions.
State Street Corporation
S&P 500 Index
S&P Financial Index
KBW Bank Index
2015
2016
2017
2018
2019
2020
$
100 $
100
100
100
120 $
112
123
129
153 $
136
150
152
101 $
130
130
125
131 $
171
172
171
124
203
169
153
State Street Corporation | 57
Year EndedTotal Shareholder Return ($)Comparison of Five-Year Cumulative Total Shareholder ReturnState Street CorporationS&P 500 IndexS&P Financial IndexKBW Bank Index20152016201720182019202075100125150175200225250275
ITEM 6.
SELECTED FINANCIAL DATA
(Dollars in millions, except per share amounts or where
otherwise noted)
YEARS ENDED DECEMBER 31:
2020(1)
2019(1)
2018(1)
2017
2016
Total fee revenue
Net interest income
Total other income
Total revenue
Provision for credit losses(2)
Total expenses
Income before income tax expense
Income tax expense (benefit)
Net income from non-controlling interest
Net income
Adjustments to net income(3)
$
9,499
$
9,147
$
9,454
$
9,001
$
8,200
2,200
4
2,566
43
2,671
6
2,304
(39)
2,084
7
11,703
11,756
12,131
11,266
10,291
88
8,716
2,899
479
—
10
9,034
2,712
470
—
15
9,015
3,101
508
—
2
8,269
2,995
839
—
10
8,077
2,204
67
1
$
2,420
$
2,242
$
2,593
$
2,156
$
2,138
(163)
(233)
(189)
(184)
(175)
Net income available to common shareholders
$
2,257
$
2,009
$
2,404
$
1,972
$
1,963
PER COMMON SHARE:
Earnings per common share:
Basic
Diluted
Cash dividends declared
$
$
6.40
6.32
2.08
5.43
5.38
1.98
$
$
6.46
6.39
1.78
5.26
5.19
1.60
$
5.01
4.96
1.44
Closing market price (at year end)
72.78
79.10
63.07
97.61
77.72
AS OF DECEMBER 31:
Investment securities
Average total interest-earning assets
Total assets
Deposits
Long-term debt
Total shareholders' equity
Assets under custody and/or administration (in billions)
Assets under management (in billions)
Number of employees
RATIOS:
$ 111,276
$
95,597
$
87,062
$
97,579
$
97,167
228,874
314,706
239,798
13,805
26,200
38,791
3,467
39,439
181,891
245,610
181,872
12,509
24,431
34,358
3,116
39,103
185,637
244,596
180,360
11,093
24,737
31,620
2,511
40,142
191,235
238,392
184,896
11,620
22,270
33,119
2,782
36,643
199,184
242,689
187,163
11,430
21,193
28,771
2,468
33,783
Return on average common shareholders' equity
10.0 %
9.4 %
12.1 %
10.5 %
10.4 %
Return on average assets
Common dividend payout
Average common equity to average total assets
Net interest margin, fully taxable-equivalent basis
Common equity tier 1 ratio(4)
Tier 1 capital ratio(4)
Total capital ratio(4)
Tier 1 leverage ratio(5)
Supplementary leverage ratio(6)
0.9
32.9
8.3
0.97
12.3
14.4
15.3
6.4
8.1
1.0
36.8
9.6
1.42
11.7
14.5
15.6
6.9
6.1
1.2
27.6
8.9
1.47
11.7
15.5
16.3
7.2
6.3
1.0
30.2
8.6
1.29
11.9
15.0
16.0
7.3
6.5
0.9
28.5
8.2
1.13
11.6
14.7
16.0
6.5
5.9
(1) CRD was acquired on October 1, 2018. 2018 includes results of CRD for one quarter. 2019 and 2020 include results of CRD for a full year. Additional information about CRD
is included in our Management's Discussion and Analysis.
(2) We adopted ASU 2016-13, Financial Instruments-Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2020. Please refer to Note
1 to the consolidated financial statements in this Form 10-K for additional information.
(3) Amounts represent preferred stock dividends and the allocation of earnings to participating securities using the two-class method.
(4) The capital ratios presented are calculated in conformity with the applicable regulatory guidance in effect as of each period end. The reportable ratios represent the lower of
each of the risk-based capital ratios under both the standardized approach and the advanced approaches. Refer to Note 16 to the consolidated financial statements in this Form
10-K.
(5) The Tier 1 leverage ratio was calculated in conformity with the Basel III rule.
(6) The SLR was calculated using the tier 1 capital as calculated under the SLR provisions of the Basel III rule.
State Street Corporation | 58
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
As of December 31, 2020, we had consolidated
total assets of $314.71 billion, consolidated total
deposits of $239.80 billion, consolidated
total
shareholders' equity of $26.20 billion and over 39,000
employees. We operate in more than 100 geographic
markets worldwide,
the U.S., Canada,
including
Europe, the Middle East and Asia.
Our operations are organized into two lines of
business,
Investment
Investment Servicing and
Management, which are defined based on products
and services provided.
funds and other
for
Investment Servicing provides services
institutional clients, including mutual funds, collective
investment pools,
investment
corporate and public retirement plans, insurance
companies, investment managers, foundations and
endowments worldwide. Products include: custody;
product accounting; daily pricing and administration;
master trust and master custody; depotbank services
(a fund oversight role created by non-U.S. regulation);
record-keeping;
foreign
exchange, brokerage and other trading services;
securities finance and enhanced custody products;
deposit and short-term investment facilities; loans and
lease financing; investment manager and alternative
investment manager
outsourcing;
performance, risk and compliance analytics; and
financial data management to support institutional
investors.
cash management;
operations
is designed
technology offering which
Included within our Investment Servicing line of
business is CRD, which we acquired in October 2018.
The Charles River Investment Management solution
is a
to
automate and simplify the institutional investment
process across asset classes,
from portfolio
management and risk analytics through trading and
post-trade settlement, with integrated compliance and
managed data throughout. With the acquisition of
CRD, we took the first step in building our front-to-
back platform, State Street Alpha. Today our State
Street
portfolio
management, trading and execution, advanced data
aggregation, analytics and compliance tools, and
industry platforms and
integration with other
providers.
combines
platform
Alpha
Investment Management, through State Street
Global Advisors, provides a broad
range of
investment management strategies and products for
our clients. Our investment management strategies
and products span the risk/reward spectrum for
equity, fixed income and cash assets, including core
and enhanced indexing, multi-asset strategies, active
quantitative and fundamental active capabilities and
investment strategies. Our AUM
alternative
is
currently primarily weighted to indexed strategies. In
addition, we provide a breadth of services and
solutions,
including environmental, social and
governance investing, defined benefit and defined
contribution and Global Fiduciary Solutions (formerly
Outsourced Chief Investment Officer). State Street
Global Advisors is also a provider of ETFs, including
the SPDR® ETF brand. While management fees are
primarily determined by the values of AUM and the
investment strategies employed, management fees
reflect other factors as well, including the benchmarks
specified in the respective management agreements
related to performance fees.
For financial and other information about our
lines of business,
“Line of Business
to
Information” in this Management's Discussion and
Analysis and Note 24 to the consolidated financial
statements in this Form 10-K.
refer
This Management's Discussion and Analysis
should be read in conjunction with the consolidated
financial statements and accompanying notes to
consolidated financial statements in this Form 10-K.
Certain previously reported amounts presented in this
Form 10-K have been reclassified to conform to
current-period presentation.
our
We
prepare
consolidated
financial
statements
in conformity with U.S. GAAP. The
preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates
its application of certain
and assumptions
accounting policies that materially affect the reported
amounts of assets, liabilities, equity, revenue and
expenses.
in
The significant accounting policies that require
us to make judgments, estimates and assumptions
that are difficult, subjective or complex about matters
that are uncertain and may change in subsequent
periods include:
• accounting
for
fair
value
measurements;
• allowance for credit losses;
•
impairment of goodwill and other
intangible assets; and
contingencies.
•
These significant accounting policies require the
most subjective or complex
judgments, and
underlying estimates and assumptions could be
subject to revision as new information becomes
these
available. Additional
included under
significant accounting policies
information about
is
State Street Corporation | 59
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
risk associated with our trading activities) and the
liquidity coverage ratio, summary results of State
Street-run stress tests which we conduct under the
Dodd-Frank Act and resolution plan disclosures
required under the Dodd-Frank Act. These additional
disclosures are available on the “Investor Relations”
section of our website under "Filings and Reports."
In
this Form 10-K, we
reference various
information and materials available on our corporate
website. We have included our website address in
this report as an inactive textual reference only.
Information on our website is not incorporated by
reference in this Form 10-K.
We use acronyms and other defined terms for
certain business terms and abbreviations, as defined
on the acronyms list and glossary in this Form 10-K.
“Significant
Accounting
Management's Discussion and Analysis.
Estimates”
in
this
Certain financial information provided in this
Form 10-K, including this Management's Discussion
and Analysis, is prepared on both a U.S. GAAP, or
reported basis, and a non-GAAP basis, including
certain non-GAAP measures used in the calculation
of identified regulatory ratios. We measure and
compare certain financial information on a non-GAAP
basis, including information that management uses in
evaluating our business and activities. Non-GAAP
financial information should be considered in addition
to, and not as a substitute for or superior to, financial
information prepared in conformity with U.S. GAAP.
Any non-GAAP financial information presented in this
Form 10-K, including this Management’s Discussion
and Analysis, is reconciled to its most directly
comparable currently applicable regulatory ratio or
U.S. GAAP-basis measure. We further believe that
our presentation of fully taxable-equivalent NII, a non-
GAAP measure, which reports non-taxable revenue,
such as interest income associated with tax-exempt
investment securities, on a fully taxable-equivalent
basis, facilitates an investor's understanding and
analysis of our underlying financial performance and
trends.
This Management's Discussion and Analysis
contains statements that are considered "forward-
looking statements" within the meaning of U.S.
securities laws. Forward-looking statements include
statements about our goals and expectations
financial and capital
regarding our business,
condition, results of operations, strategies, cost
savings and transformation initiatives, investment
portfolio performance, dividend and stock purchase
programs, outcomes of legal proceedings, market
growth, acquisitions, joint ventures and divestitures,
client growth and new technologies, services and
opportunities, as well as industry, governmental,
regulatory, economic and market trends, initiatives
and developments, the business environment and
other matters that do not relate strictly to historical
facts. These
involve
certain risks and uncertainties which could cause
actual results to differ materially. We undertake no
obligation to revise the forward-looking statements
contained in this Management's Discussion and
Analysis to reflect events after the time we file this
Form 10-K with the SEC. Additional information about
forward-looking statements and related risks and
uncertainties
"Forward-Looking
Statements", "Risk Factors Summary" and "Risk
Factors" in this Form 10-K.
forward-looking statements
is provided
in
We provide additional disclosures required by
applicable bank
including
supplemental qualitative and quantitative information
with respect to regulatory capital (including market
regulatory standards,
State Street Corporation | 60
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW OF FINANCIAL RESULTS
TABLE 1: OVERVIEW OF FINANCIAL RESULTS
(Dollars in millions, except per share amounts)
Total fee revenue(1)
Net interest income
Total other income
Total revenue(1)
Provision for credit losses(2)
Total expenses(1)
Income before income tax expense
Income tax expense
Net income
Adjustments to net income:
Dividends on preferred stock(3)
Earnings allocated to participating securities(4)
Years Ended December 31,
2020
2019
2018
$
9,499
$
9,147
$
2,200
4
11,703
88
8,716
2,899
479
2,566
43
11,756
10
9,034
2,712
470
9,454
2,671
6
12,131
15
9,015
3,101
508
$
2,420
$
2,242
$
2,593
$
(162)
$
(232)
$
(188)
(1)
(1)
(1)
Net income available to common shareholders
$
2,257
$
2,009
$
2,404
Earnings per common share:
Basic
Diluted
Average common shares outstanding (in thousands):
Basic
Diluted
$
6.40
$
5.43
$
6.32
5.38
6.46
6.39
352,865
357,106
369,911
373,666
371,983
376,476
Cash dividends declared per common share
$
2.08
$
1.98
$
1.78
Return on average common equity
Pre-tax margin
10.0 %
24.8
9.4 %
23.1
12.1 %
25.6
(1) CRD contributed approximately $420 million and $248 million in total revenue and total expenses, respectively, in 2020, approximately $385 million and $201
million in total revenue and total expenses, respectively, in 2019 and approximately $119 million and $39 million in total revenue and total expenses, respectively, in
2018, which reflects their results from October 1, 2018, the date of acquisition, through December 31, 2018.
(2) We adopted ASU 2016-13, Financial Instruments-Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2020. Please
refer to Note 1 to the consolidated financial statements in this Form 10-K for additional information.
(3) Additional information about our preferred stock dividends is provided in Note 15 to the consolidated financial statements in this Form 10-K.
(4) Represents the portion of net income available to common equity allocated to participating securities, composed of unvested and fully vested SERP (Supplemental
executive retirement plans) shares and fully vested deferred director stock awards, which are equity-based awards that contain non-forfeitable rights to dividends, and
are considered to participate with the common stock in undistributed earnings.
State Street Corporation | 61
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following “Financial Results and Highlights”
section provides information related to significant
events, as well as highlights of our consolidated
financial results for the year ended December 31,
2020 presented in Table 1: Overview of Financial
information about our
Results. More detailed
the
results,
consolidated
comparison of our financial results for the year ended
December 31, 2020 to those for the year ended
December 31, 2019, is provided under “Consolidated
Results of Operations”, "Line of Business Information"
and "Capital" which follows these sections, as well as
in our consolidated financial statements in this Form
10-K.
including
financial
The comparison of our financial results for the
year ended December 31, 2019 to those for the year
ended December 31, 2018
in our
Management's Discussion and Analysis in the Annual
Report on Form 10-K for the fiscal year ended
December 31, 2019 filed with the SEC on February
20, 2020.
included
is
In this Management’s Discussion and Analysis,
where we describe the effects of changes in FX rates,
those effects are determined by applying applicable
weighted average FX rates from the relevant 2019
period to the relevant 2020 period results.
Financial Results and Highlights
•
2020 financial performance:
◦
◦
EPS of $6.32 in 2020 increased 17%
compared to $5.38 in 2019.
In 2020, return on equity of 10.0%
increased
in 2019,
from 9.4%
primarily due to an increase in net
income
common
shareholders. Pre-tax margin of
24.8% in 2020 increased from 23.1%
in 2019, primarily due to a decrease
in total expenses.
available
to
2020. Operating
◦ Operating leverage was 3.0% points
in
leverage
represents the difference between
the percentage change
total
revenue and the percentage change
in
in each case
relative to the prior year period.
total expenses,
in
•
The impact of the COVID-19 pandemic,
including the actions we took to support our
clients, the financial markets and the broader
economy, is reflected in our 2020 results:
◦ We experienced higher
levels of
client deposits and record client FX
trading volume.
◦ We continued to onboard new clients
and managed elevated transaction
volumes in the first half of the year.
◦
◦ We supported our clients' liquidity
needs through our participation in the
Money Market Mutual Fund Liquidity
Facility (MMLF) and are custodian
and administrator for four Federal
Reserve Programs: Commercial
Paper Funding Facility, Main Street
Lending Program, and Primary and
Secondary Markets Corporate Credit
Facilities.
Having moved up to approximately
90% of our workforce to a remote
working environment in the first half
of 2020, we developed a safe and
reopen
framework
measured
offices and are establishing a
"Workplace of
the Future" plan,
leveraging technology and a hybrid
work
from home model, with
approximately 80% of our employees
continuing to work remotely as of
December 31, 2020.
to
Revenue
•
•
Total revenue was flat in 2020 compared to
2019, as the increase in total fee revenue
was offset by a decline in NII. Total fee
revenue increased 4% in 2020 compared to
2019, primarily driven by
in
servicing fees, management fees, foreign
exchange trading services and software and
processing fees, partially offset by lower
securities finance revenue.
increases
Servicing fee revenue increased 2% in 2020
compared to 2019, primarily due to higher
average market levels and client activity,
primarily in the first half of 2020, partially
offset by normal pricing headwinds. FX rates
impacted servicing fees positively by 1% in
2020, relative to 2019.
• Management fee revenue increased 3% in
2020 compared to 2019, primarily due to
higher average market levels and ETF and
cash net
inflows, partially offset by net
institutional outflows.
•
•
•
Foreign exchange trading services increased
29% in 2020 compared to 2019 primarily due
to elevated market volatility and record client
FX volumes.
Securities finance revenue decreased 24% in
2020 compared to 2019, reflecting decreases
in enhanced custody balances due to client
deleveraging and
lending
revenues due to lower spreads.
lower agency
Software and processing
revenue
increased 2% in 2020 compared to 2019
primarily driven by higher CRD revenues.
fees
State Street Corporation | 62
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
◦
including $406 million
Total revenues contributed by CRD in
2020 were approximately $420
in
million,
software and processing fees and
$14 million in brokerage and other
trading
foreign
services, within
trading services. CRD
exchange
revenue with affiliated entities, which
is eliminated
in our consolidated
financial statements, was $39 million
and $18 million in 2020 and 2019,
respectively.
•
NII decreased 14% in 2020 compared to
2019, primarily due to lower market rates,
partially offset by higher client deposits
balances, higher
investment
portfolio growth.
loans and
Provision for Credit Losses
• We adopted ASU 2016-13, Financial
Instruments - Credit Losses (ASC 326):
Measurement of Credit Losses on Financial
Instruments, on January 1, 2020, which
replaces the incurred loss methodology with
an expected credit loss methodology that is
referred to as the CECL methodology. The
impact of transitioning to ASC 326 on the
consolidated financial statements was an
increase in the allowance for credit losses
and a decrease in retained earnings of $3
million. We recorded a provision for credit
losses of $88 million in 2020, which reflects
the impact of credit migration within our loan
portfolio, as well as a downward revision in
management’s economic outlook reflecting
the impact of the COVID-19 pandemic.
In 2019, we recorded a provision for credit
losses of $10 million under the incurred loss
methodology.
•
Expenses
•
•
•
•
in 2020
Total expenses decreased 4%
compared to 2019, primarily reflecting on-
going expense management initiatives and
lower notable items.
◦
of
charges
$133
$82 million
2020 notable items included:
of
repositioning
million,
approximately
consisting
of
compensation and employee benefits
expenses and $51 million of
occupancy costs, in order to further
drive automation of processes and
simplification,
organizational
enablement
workforce
of
rationalization and reduction of our
real estate footprint by approximately
13% of our total square footage;
◦
◦
◦
acquisition and restructuring costs of
approximately $50 million, primarily
related to CRD;
accrual release of approximately $9
million; and
costs of $9 million due
the
redemption of all outstanding Series
C non-cumulative perpetual preferred
stock
the difference
between the redemption value and
the
the net carrying value of
preferred stock.
representing
to
◦
◦
◦
◦
of
charges
related expenses of
2019 notable items included:
repositioning
approximately $110 million;
legal and
approximately $172 million;
acquisition and restructuring costs of
approximately $77 million, primarily
related to CRD;
gain of approximately $44 million on
the extinguishment of approximately
$297 million of our outstanding
floating
junior subordinated
debentures due 2047 following a
cash tender offer; and
costs of $22 million due
the
redemption of all outstanding Series
E non-cumulative perpetual preferred
stock
the difference
between the redemption value and
the
the net carrying value of
preferred stock.
representing
rate
to
◦
respectively,
$148 million
Total expenses contributed by CRD in 2020
and 2019 were approximately $248 million
including
and $201 million,
$183 million and
in
compensation and employee benefits and
$65 million and $53 million in other expense
lines, respectively. In addition, CRD-related
expenses in 2020 and 2019 included $66
million and $65 million, respectively,
in
amortization of other intangible assets.
AUC/A and AUM
•
AUC/A increased 13% as of December 31,
2020 compared
to December 31, 2019,
primarily due to higher period-end market
levels, net new business installations and
client flows. In 2020, newly announced asset
servicing mandates
totaled approximately
$787 billion, with an increasing proportion
incorporating State Street Alpha. Servicing
assets remaining to be installed in future
periods totaled approximately $436 billion as
of December 31, 2020.
State Street Corporation | 63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
•
AUM increased 11% as of December 31,
2020 compared
to December 31, 2019,
primarily due to higher period-end market
levels and net inflows from ETFs and cash,
partially offset by institutional net outflows.
Capital
•
In 2020, we returned a total of approximately
$1.23 billion to our shareholders in the form
of common stock dividends and share
purchases. On March 16, 2020, we, along
the other U.S. G-SIBs, suspended
with
common share repurchases
the
fourth quarter of 2020 in response to the
COVID-19 pandemic. This suspension was
consistent with limitations imposed by the
Federal Reserve beginning in the second
quarter of 2020.
through
•
▪ We declared aggregate common stock
dividends of $2.08 per share, totaling $734
million in 2020, compared to $1.98 per share,
totaling $728 million in 2019.
In 2020, we acquired 6.5 million shares of
common stock at an average per share cost
of $77.35 and an aggregate cost of
approximately $500 million. In 2019, we
acquired 24.9 million shares of common
stock at an average per share cost of $64.30
and an aggregate cost of approximately
$1.6 billion. These purchases were all
conducted under share purchase programs
approved by our Board of Directors.
•
As required by the Federal Reserve, we and
other participating CCAR banks resubmitted
our capital plans by November 2, 2020 under
updated scenarios provided by the Federal
Reserve due to the COVID-19 pandemic.
Effective December 2020,
the Federal
Reserve has authorized us to continue to pay
common stock dividends at current levels and
to resume repurchasing common shares in
the first quarter of 2021, subject to certain
limitations
(together with common stock
dividends) based primarily on average 2020
quarterly net income. In January 2021, our
Board authorized a share
repurchase
program for the purchase of up to $475
million of our common stock through March
31, 2021.
• Our CET1 capital ratio increased to 12.3% as
of December 31, 2020 compared to 11.7% as
of December 31, 2019, primarily due to
higher retained earnings, partially offset by an
increase in risk weighted assets primarily due
to higher client lending activity. Our Tier 1
leverage ratio decreased to 6.4% as of
December 31, 2020 compared to 6.9% as of
December 31, 2019 due to an increase in
adjusted average assets driven by higher
deposits, partially offset by higher retained
earnings. As of December 31, 2020,
standardized capital ratios were binding. As
of December
advanced
approaches capital ratios were binding.
2019,
31,
Capital Redemptions
• We redeemed all outstanding Series C non-
cumulative perpetual preferred stock on
March 15, 2020 at an aggregate redemption
price of $500 million ($100,000 per share
equivalent to $25.00 per depositary share)
plus accrued and unpaid dividends.
• On January 14, 2021, we announced that we
will redeem on March 15, 2021 an aggregate
of $500 million, or 5,000 of
the 7,500
outstanding shares of our non-cumulative
perpetual preferred stock, Series F, for cash
at a redemption price of $100,000 per share
(equivalent to $1,000 per depositary share)
plus all declared and unpaid dividends. A
cash dividend of $953.38 per share of Series
F Preferred Stock (or approximately $9.5338
per depositary share) has been declared for
the period from December 15, 2020 up to but
not including March 15, 2021 (the “March
Dividend”). The March Dividend will be paid
separately to the holders of record of the
Series F Preferred Stock as of March 1, 2021
in the customary manner. Accordingly, there
will not be any declared and unpaid dividends
included in the redemption price.
Debt Issuances
• On January 24, 2020, we issued $750 million
aggregate principal amount of 2.400% Senior
Notes due 2030.
• On March 26, 2020, we issued $750 million
aggregate principal amount of 2.825% Fixed-
to-Floating Rate Senior Notes due 2023,
$500 million aggregate principal amount of
2.901% Fixed-to-Floating Rate Senior Notes
due 2026 and $500 million aggregate
principal amount of 3.152% of Fixed-to-
Floating Rate Senior Notes due 2031.
State Street Corporation | 64
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for 2020 compared to 2019 and should be read
in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial
statements in this Form 10-K.
Total Revenue
TABLE 2: TOTAL REVENUE
(Dollars in millions)
Fee revenue:
Servicing fees
Management fees(1)
Foreign exchange trading services(1)(2)
Securities finance
Software and processing fees(2)
Total fee revenue(2)(3)
Net interest income:
Interest income
Interest expense
Net interest income
Other income:
Gains (losses) related to investment
securities, net
Other income
Total other income
Total revenue(2)
Years Ended December 31,
2020
2019
2018
% Change 2020 vs.
2019
% Change 2019 vs.
2018
$
5,167 $
5,074 $
1,880
1,363
356
733
9,499
2,575
375
2,200
4
—
4
1,824
1,058
471
720
9,147
3,941
1,375
2,566
(1)
44
43
5,421
1,899
1,153
543
438
9,454
3,662
991
2,671
9
(3)
6
$
11,703 $
11,756 $
12,131
2 %
(6) %
3
29
(24)
2
4
(35)
(73)
(14)
nm
nm
nm
—
(4)
(8)
(13)
64
(3)
8
39
(4)
nm
nm
nm
(3)
(1) Certain fees associated with our GLD ETFs have been reclassified from foreign exchange trading services to management fees to better reflect the nature of those fees. Prior
periods have been reclassified to conform to current-period presentation. These fees were approximately $81 million, $53 million and $48 million in 2020, 2019 and 2018,
respectively.
(2) CRD contributed approximately $420 million in total revenue in 2020, approximately $385 million in total revenue in 2019 and approximately $119 million in total revenue in
2018, which reflects their results from October 1, 2018, the date of acquisition, through December 31, 2018.
(3) The impact of State Street Global Advisors Money Market Fund fee waivers on total fee revenue was less than $10 million for 2020, 2019 and 2018.
nm Not meaningful
Fee Revenue
Table 2: Total Revenue, provides the breakout of fee revenue for the years ended December 31, 2020, 2019
and 2018. Servicing and management fees collectively made up approximately 74%, 75% and 77% of the total fee
revenue in 2020, 2019 and 2018, respectively.
Servicing Fee Revenue
Generally, our servicing fee revenues are affected by several factors including changes in market valuations,
client activity and asset flows, net new business and the manner in which we price our services. We provide a range
of services to our clients, including core custody services, accounting, reporting and administration and middle office
services, and the nature and mix of services provided affects our servicing fees. The basis for fees will differ across
regions and clients.
Changes in Market Valuations
Our servicing fee revenue is impacted by both our levels and the geographic and product mix of our AUC/A.
Increases or decreases in market valuations have a corresponding impact on the level of our AUC/A and servicing
fee revenues, though the degree of impact will vary depending on asset types and classes and geography of assets
held within our clients’ portfolios.
Over the five years ended December 31, 2020, we estimate that worldwide market valuations impacted our
servicing fee revenues by approximately (1)% to 5% annually and approximately 2% and 0% in 2020 and 2019,
respectively. See Table 3: Daily Averages, Month-End Averages and Year-End Equity Indices for selected indices.
While the specific indices presented are indicative of general market trends, the asset types and classes relevant to
individual client portfolios can and do differ, and the performance of associated relevant indices and of client
portfolios can therefore differ from the performance of the indices presented. In addition, our asset classifications
may differ from those industry classifications presented.
Assuming that all other factors remain constant, including client activity and asset flows and pricing, we
estimate, using relevant information as of December 31, 2020 that a 10% increase or decrease in worldwide equity
State Street Corporation | 65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
valuations, on a weighted average basis, over the relevant periods for which our servicing fees are calculated,
would result in a corresponding change in our total servicing fee revenues, on average and over multiple quarters,
of approximately 3%. We estimate, similarly assuming all other factors constant and using relevant information as of
December 31, 2020, that changes in worldwide fixed income markets, which on a weighted average basis and over
time are typically less volatile than worldwide equity markets, have a smaller impact on our servicing fee revenues
on average and over time.
TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND YEAR-END EQUITY INDICES(1)
S&P 500®
MSCI EAFE®
MSCI® Emerging Markets
Daily Averages of Indices
Month-End Averages of Indices
Year-End Indices
Years Ended December 31,
Years Ended December 31,
Years Ended December 31,
2020
2019
% Change
2020
2019
% Change
2020
2019
% Change
3,218
1,854
1,059
2,913
1,892
1,036
10 %
(2)
2
3,217
1,841
1,052
2,938
1,903
1,043
9 %
(3)
1
3,756
2,148
1,291
3,231
2,037
1,115
16 %
5
16
(1) The index names listed in the table are service marks of their respective owners.
TABLE 4: YEAR-END DEBT INDICES(1)
Barclays Capital U.S. Aggregate Bond Index®
Barclays Capital Global Aggregate Bond Index®
(1) The index names listed in the table are service marks of their respective owners.
Client Activity and Asset Flows
As of December 31,
2020
2019
% Change
2,392
559
2,225
512
8 %
9
Client activity and asset flows are impacted by the number of transactions we execute on behalf of our clients,
including FX settlements, equity and derivative trades, and wire transfer activity, as well as actions by our clients to
change the asset class in which their assets are invested. Our servicing fee revenues are impacted by a number of
factors, including transaction volumes, asset levels and asset classes in which funds are invested, as well as
industry trends associated with these client-related activities.
Our clients may change the asset classes in which their assets are invested, based on their market outlook,
risk acceptance tolerance or other considerations. Over the five years ended December 31, 2020, we estimate that
client activity and asset flows, together, impacted our servicing fee revenues by approximately (1)% to 2% annually
and approximately 2% and (1)% in 2020 and 2019, respectively, with the impact for 2020 largely in the first half of
the year. See Table 5: Industry Asset Flows for selected asset flow information. While the asset flows presented are
indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do
differ, and our flows may differ from those market trends. In addition, our asset classifications may differ from those
industry classifications presented.
TABLE 5: INDUSTRY ASSET FLOWS
(In billions)
North America - (US Domiciled) - Morningstar Direct Market Data(1)(2)(3)
Years Ended December 31,
2020
2019
Long-Term Funds(4)
Money Market
Exchange-Traded Fund
Total ICI Flows
Europe -Morningstar Direct Market Data(1)(2)(5)
Long-Term Funds(4)
Money Market
Exchange-Traded Fund
Total Broadridge Flows
$
$
$
$
(103.7) $
677.7
280.2
854.2 $
373.5 $
224.4
108.0
705.9 $
256.5
516.3
204.2
977.0
373.2
105.7
118.9
597.8
(1) Industry data is provided for illustrative purposes only. It is not intended to reflect our activity or our clients' activity and is indicative of only segments of the entire industry.
(2) Source: Morningstar. The data includes long-term mutual funds, ETFs and money market funds. Mutual fund data represents estimates of net new cash flow, which is new sales minus
redemptions combined with net exchanges, while ETF data represents net issuance, which is gross issuance less gross redemptions. Data for Fund of Funds, Feeder funds and Obsolete
funds were excluded from the series to prevent double counting. Data is from the Morningstar Direct Asset Flows database.
(3) The year ended December 31, 2020 data for North America (US domiciled) includes Morningstar direct actuals for January 2020 through November 2020 and Morningstar direct
estimates for December 2020.
(4) The long-term fund flows reported by Morningstar direct in North America are composed of US domiciled market flows mainly in Equities, Allocation and Fixed-Income asset classes. The
long-term fund flows reported by Morningstar direct in EMEA are composed of the European market flows mainly in Equities, Allocation and Fixed-Income asset classes.
(5) The year ended December 31, 2020 data for Europe is on a rolling twelve month basis for December 2019 through November 2020, sourced by Morningstar.
State Street Corporation | 66
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net New Business
Over the five years ended December 31, 2020,
net new business, which includes business both won
and lost, has affected our servicing fee revenues by
approximately 2% on average with a range of 0% to
3% annually and approximately 0% and 0% in 2020
and 2019, respectively. Gross investment servicing
mandates were $787 billion in 2020 and $1.3 trillion
per year on average over the past five years. Over
the five years ended December 31, 2020, gross
annual investment servicing mandates ranged from
$750 billion to nearly $2.0 trillion.
administration;
New business impacting servicing fees can
include: custody; product accounting; daily valuation
and
cash
services. Revenues
management; and other
associated with new servicing mandates may vary
based on the breadth of services provided, the time
required to install the assets, and the types of assets
installed.
record-keeping;
Revenues associated with new mandates are
not reflected in our servicing fee revenue until the
assets have been installed. Our installation timeline,
in general, can range from 6 to 36 months, with the
average installation timeline being approximately 9 to
12 months over the past 2 years. Our more complex
installations,
including new State Street Alpha
mandates, will generally be on the longer end of that
range.
Pricing
The industry in which we operate has historically
fee
faced pricing pressure, and our servicing
revenues are also affected by such pressures today.
Consequently, no assumption should be drawn as to
future revenue run rate from announced servicing
wins, as the amount of revenue associated with AUC/
A can vary materially. On average, over the five years
ended December 31, 2020, we estimate that pricing
pressure with respect to existing clients has impacted
our servicing fees by approximately (2)% annually,
with the impact ranging from (1)% to (4)% in any
given year, and approximately (2)% in 2020 and (4)%
in 2019. Pricing concessions can be a part of a
contract renegotiation with a client including terms
that may benefit us, such as extending the terms of
our relationship with the client, expanding the scope
reducing our
of services
that we provide or
the
dependency on manual processes
standardization of the services we provide. The timing
of the impact of additional revenue generated by
anticipated additional services, and the amount of
revenue generated, may differ from the impact of
pricing concessions on existing services due to the
necessary time required to onboard those new
services, the nature of those services and client
investment practices. These same market pressures
through
also impact the fees we negotiate when we win
business from new clients.
In order to offset the typical client attrition and
normal pricing headwinds, we estimate that we need
at least $1.5 trillion of new AUC/A per year; although,
notwithstanding increases in AUC/A, servicing fees
remain subject to several factors, including changes
in market valuations, client activity and asset flows,
the manner in which we price our services, the nature
of the assets being serviced and the type of services
and the other factors described in this Form 10-K.
Historically, and based on an indicative sample
of revenue, we estimate that approximately 55%, on
average, of our servicing fee revenues have been
variable due to changes in asset valuations including
changes
in daily average valuations of AUC/A;
another 15%, on average, of our servicing fees are
impacted by the volume of activity in the funds we
serve; and the remaining approximately 30% of our
servicing fees tend not to be variable in nature nor
impacted by market fluctuations or values.
The impact of the above, client activity and asset
flows, net new business and pricing, noted drivers of
our servicing fee revenue will vary depending on the
mix of products and services we provide to our
clients. The
in market
valuations and the volume of activity in the funds may
not be fully reflected in our servicing fee revenues in
the periods in which the changes occur, particularly in
periods of higher volatility.
impact of changes
full
Management Fee Revenue
Management fees generally are affected by our
level of AUM, which we report based on month-end
valuations. Management fees for certain components
of managed assets, such as ETFs, mutual funds and
UCITS, are affected by daily average valuations of
AUM. Management fee revenue is more sensitive to
market valuations than servicing fee revenue, as a
higher proportion of the underlying services provided,
and the associated management fees earned, are
dependent on equity and
fixed-income security
valuations. Additional factors, such as the relative mix
of assets managed, may have a significant effect on
revenue. While certain
our management
management fees are directly determined by the
values of AUM and
investment strategies
the
employed, management
fees may reflect other
factors, including performance fee arrangements, as
well as our relationship pricing for clients. In addition,
in a prolonged low-interest rate environment, such as
we are currently experiencing, we have waived and
may in the future waive certain fees for our clients for
money market products.
fee
Asset-based management fees for passively
managed products, to which our AUM is currently
primarily weighted, are generally charged at a lower
fee on AUM than for actively managed products.
State Street Corporation | 67
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Actively managed products may also
include
performance fee arrangements which are recorded
when the fee is earned, based on predetermined
benchmarks associated with the applicable account's
performance.
• A 10%
In light of the above, we estimate, using relevant
information as of December 31, 2020 and assuming
that all other factors remain constant, including the
impact of business won and lost and client flows, that:
in
worldwide equity valuations, on a weighted
average basis, over the relevant periods for
which our management fees are calculated,
would result in a corresponding change in our
total management fee revenues, on average
and over multiple quarters, of approximately
5%; and
increase or decrease
• A 10%
in
increase or decrease
fixed-income valuations, on a
worldwide
weighted average basis, over the relevant
periods for which our management fees are
calculated, would result in a corresponding
fee
change
revenues, on average and over multiple
quarters, of approximately 4%.
total management
in our
Daily averages, month-end averages and year-
end indices demonstrate worldwide changes in equity
and debt markets that affect our management fee
revenue. Year-end indices affect the values of AUM
as of those dates. See Table 3: Daily Averages,
Month-End Averages and Year-End Equity Indices for
selected indices.
Additional information about fee revenue is
Information"
"Line of Business
this Management's Discussion and
provided under
included
Analysis.
in
Net Interest Income
See Table 2: Total Revenue, for the breakout of
interest income and interest expense for the years
ended December 31, 2020, 2019 and 2018.
NII is defined as interest income earned on
interest-earning assets less interest expense incurred
on interest-bearing liabilities. Interest-earning assets,
which principally consist of investment securities,
interest-bearing deposits with banks, loans, resale
agreements and other liquid assets, are financed
primarily by client deposits, short-term borrowings
and long-term debt.
NIM
represents
relationship between
the
annualized FTE NII and average total interest-earning
assets for the period. It is calculated by dividing FTE
NII by average interest-earning assets. Revenue that
is exempt from income taxes, mainly earned from
certain
investment securities (state and political
subdivisions), is adjusted to a FTE basis using the
U.S. federal and state statutory income tax rates.
NII on a FTE basis decreased in 2020 compared
to 2019, primarily due to lower market rates, partially
offset by higher client deposits, core loan and
investment securities balances.
Investment securities net premium amortization,
which is included in interest income, was $575 million
in 2020 compared to $434 million in 2019 and $391
million in 2018. The increase is primarily driven by
higher MBS premium amortization as a result of lower
interest
faster prepayments. As of
December 31, 2020, 2019 and 2018, approximately
61%, 60% and 52%, respectively, of unamortized
premiums, net of discounts, was related to mortgage-
backed securities.
rates and
level rate of return over
Interest income related to debt securities is
recognized in our consolidated statement of income
using the effective interest method, or on a basis
approximating a
the
contractual or estimated life of the security. The rate
of return considers any non-refundable fees or costs,
as well as purchase premiums or discounts, resulting
in amortization or accretion, accordingly. The
amortization of premiums and accretion of discounts
are adjusted for prepayments when they occur, which
primarily impact mortgage-backed securities.
The following table presents the investment
securities amortizable purchase premium net of
discount accretion for the periods indicated:
TABLE 6: INVESTMENT SECURITIES NET PREMIUM
AMORTIZATION
Years Ended December 31,
(Dollars in millions)
2020
2019
2018
Unamortized premiums, net
of discounts at period end
Net premium amortization(1)
Investment securities
duration (years)(2)
$ 1,909 $ 1,585 $ 1,575
575
434
391
3.0
2.7
3.1
(1) Net of discount accretion on MMLF HTM securities.
(2) Excluding investment securities purchased under the MMLF program, the
investment securities portfolio duration is 3.1 years in 2020.
State Street Corporation | 68
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Money Market Mutual Fund Liquidity Facility
In March 2020, in response to the economic impact of the COVID-19 pandemic, the Federal Reserve
established the MMLF program in order to enhance the liquidity and functioning of crucial money markets. Through
the establishment of the MMLF program, the Federal Reserve Bank of Boston makes loans available to eligible
financial institutions secured by high-quality assets purchased by the financial institution from money market mutual
funds. The MMLF program was authorized through December 31, 2020. We are supporting our clients' liquidity
needs through this program, following its adoption on March 18, 2020. As a result of the asset purchases (including
negotiable CDs, municipals and asset-backed commercial paper), our participation in the facility was $8.2 billion on
average in 2020, and earned $16 million of NII, but was dilutive to NIM in 2020. The purchases are match funded
through Federal Reserve borrowings and the assets are posted as collateral. The borrowing is non-recourse,
meaning that the Federal Reserve has taken on the credit risk of the assets purchased. The purchased securities
are classified as held-to-maturity and have a maturity of less than 12 months. MMLF related assets do not impact
our risk-based and leverage capital ratios.
See Table 7: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on
a FTE basis for the years ended December 31, 2020, 2019 and 2018.
TABLE 7: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1)
(Dollars in millions; fully taxable-
equivalent basis)
Average
Balance
Years Ended December 31,
2020
Interest
Revenue/
Expense
Rate
Average
Balance
2019
Interest
Revenue/
Expense
Rate
Average
Balance
2018
Interest
Revenue/
Expense
Rate
Interest-bearing deposits with banks
$
76,588 $
76
.10 % $
48,500 $
416
.86 % $
54,328 $
387
.71 %
Securities purchased under resale
agreements(2)
Trading account assets
Investment securities:
Investment securities available for sale
Investment securities held-to-maturity
Investment securities held-to-maturity
purchased under money market
liquidity facility
Total Investment securities
Loans and leases
Other interest-earning assets
3,452
878
58,036
42,956
8,183
109,175
27,525
11,256
126
—
761
830
117
1,708
627
55
Average total interest-earning assets
$ 228,874 $
2,592
3.64
—
1.31
1.93
1.43
1.56
2.28
.49
1.13
2,506
884
51,853
39,915
—
91,768
24,073
14,160
364
14.54
1
.11
1,035
974
1.98
2.44
—
2,009
775
395
—
2.19
3.22
2.79
2.18
2,901
1,051
47,855
40,215
—
88,070
23,573
15,714
$ 181,891 $
3,960
$ 185,637 $
3,719
Interest-bearing deposits:
U.S.
Non-U.S.(3)
Total interest-bearing deposits(3)(4)
Securities sold under repurchase
agreements
Short-term borrowings under money
market liquidity facility
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Interest rate spread
Net interest income, fully taxable-
equivalent basis
Net interest margin, fully taxable-
equivalent basis
Tax-equivalent adjustment
Net interest income, GAAP basis
$
87,444 $
68,806
156,250
114
(231)
(117)
.13 % $
67,547 $
(.34)
(.07)
61,301
128,848
539
124
663
.80 % $
54,953 $
.20
.51
70,623
125,576
2,615
4
.14
1,616
31
1.90
2,048
8,207
2,226
14,371
3,176
101
18
312
57
375
1.22
.78
2.17
1.82
.20
.93 %
—
1,524
11,474
4,103
—
21
414
246
$ 147,565 $
1,375
—
1,327
10,686
4,956
$ 144,593 $
—
1.37
3.61
6.00
.93
1.25 %
$
2,217
$
2,585
$
2,728
.97 %
1.42 %
(17)
$
2,200
(19)
$
2,566
(57)
$
2,671
Average total interest-bearing liabilities
$ 186,845 $
335
11.55
—
—
1,007
920
2.08
2.29
—
1,927
698
372
256
107
363
13
—
17
389
209
991
—
2.19
2.96
2.37
2.00
.47 %
.15
.29
.62
—
1.28
3.64
4.20
.68
1.32 %
1.47 %
(1) Rates earned/paid on interest-earning assets and interest-bearing liabilities include the impact of hedge activities associated with our asset and liability
management activities where applicable.
(2) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $100.45 billion, $86.67 billion and $35.74 billion for the years
ended December 31, 2020, 2019 and 2018, respectively. Excluding the impact of netting, the average interest rates would be approximately 0.12%, 0.41% and 0.87%
for the years ended December 31, 2020, 2019 and 2018, respectively.
(3) Average rate includes the impact of FX swap costs of approximately ($63) million, $153 million and $106 million for the years ended December 31, 2020, 2019 and
2018, respectively. Average rates for total interest-bearing deposits excluding the impact of FX swap costs were (0.03)%, 0.40% and 0.20% for the years ended
December 31, 2020, 2019 and 2018, respectively.
(4) Total deposits averaged $193.22 billion compared to $158.26 billion and $161.41 billion for 2019 and 2018, respectively.
State Street Corporation | 69
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Changes in the components of interest-earning
assets and interest-bearing liabilities are discussed in
more detail below. Additional information about the
components of interest income and interest expense
is provided in Note 17 to the consolidated financial
statements in this Form 10-K.
total
Average
interest-earning assets were
$228.87 billion in 2020 compared to $181.89 billion in
2019. The increase is primarily due to higher interest-
bearing deposits with banks and
investment
securities.
Interest-bearing deposits with banks averaged
$76.59 billion in 2020 compared to $48.50 billion in
2019. These deposits primarily
reflect our
the Federal
maintenance of cash balances at
Reserve, the European Central Bank (ECB) and other
non-U.S. central banks. The higher levels of average
cash balances with central banks reflect higher levels
of client deposits.
Securities purchased under resale agreements
averaged $3.45 billion in 2020 compared to $2.51
billion in 2019. The impact of balance sheet netting
increased to $100.45 billion on average in 2020
compared to $86.67 billion in 2019. We maintain an
agreement with Fixed Income Clearing Corporation
(FICC), a clearing organization that enables us to net
all securities sold under repurchase agreements
against those purchased under resale agreements
with counterparties that are also members of the
clearing organization. The
in average
balance sheet netting in 2020 compared to 2019 is
primarily due to the expansion of our FICC program
and new client activity.
increase
transactions
then, we have
We have been a sponsoring member within
FICC since 2005. FICC expanded the service in
2017, and since
increased our
participation each year. We enter into repurchase and
resale
in eligible securities with
sponsored clients and with other FICC members and,
pursuant to FICC Government Securities Division
rules, submit, novate and net the transactions. We
may sponsor clients to clear their eligible repurchase
transactions with FICC, backed by our guarantee to
full payment and
FICC of
performance of our sponsored member clients’
respective obligations. We obtain a security interest
the high quality
from our sponsored clients
is
securities collateral
designed to mitigate our potential exposure to FICC.
they receive, which
the prompt and
that
in
loans, which exclude overdrafts and highlight our
efforts to grow our lending portfolio, averaged $24.04
billion in 2020 compared to $19.95 billion in 2019.
Average other interest-earning assets, largely
associated with our enhanced custody business,
decreased to $11.26 billion in 2020 from $14.16
billion in 2019, primarily driven by a reduction in the
level of cash collateral posted. Enhanced custody is
our securities financing business where we act as
principal with respect to our custody clients and
generate securities finance revenue. The NII earned
on these transactions is generally lower than the
interest earned on other alternative investments.
total
average
Aggregate
increased as a result of
interest-bearing
deposits increased to $156.25 billion in 2020 from
$128.85 billion in 2019. Average U.S. interest-bearing
deposits
the market
uncertainty due to the COVID-19 pandemic, the level
of global interest rates and new deposit gathering
initiatives. While deposits levels moderated in the
second half of 2020, deposits
levels remained
elevated throughout 2020 and we expect deposits to
remain elevated within the current environment of low
interest rates and continued expansion of the money
supply by the Federal Reserve. Future deposit levels
will be influenced by the underlying asset servicing
business, client deposit behavior and market
conditions, including the general levels of U.S. and
non-U.S. interest rates.
Average other short-term borrowings, typically
associated with our tax-exempt investment program,
increased to $2.23 billion in 2020 from $1.52 billion in
2019.
reflect
Average long-term debt was $14.37 billion in
2020 compared to $11.47 billion in 2019. These
redemptions and
amounts
issuances,
maturities of senior debt during
the respective
periods, including the issuance of $750 million of
senior debt in January 2020 and $1.75 billion in
March 2020.
Average other interest-bearing liabilities were
$3.18 billion in 2020 compared to $4.10 billion in
2019. Other interest-bearing liabilities primarily reflect
our level of cash collateral received from clients in
connection with our enhanced custody business,
which is presented on a net basis where we have
enforceable netting agreements.
Average
increased
to
investment securities
$109.18 billion in 2020 from $91.77 billion in 2019
the MMLF program, MBS
primarily driven by
balances and foreign government bonds. The growth
reflects our deployment of higher structural deposit
levels that resulted from the COVID-19 pandemic.
Loans averaged $27.53 billion
in 2020
compared to $24.07 billion in 2019. Average core
State Street Corporation | 70
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Several factors could affect future levels of NII
and NIM, including the volume and mix of client
deposits and funding sources; central bank actions;
balance sheet management activities; changes in the
level and slope of U.S. and non-U.S. interest rates;
revised or proposed regulatory capital or liquidity
standards, or interpretations of those standards; the
yields earned on securities purchased compared to
the yields earned on securities sold or matured and
changes in the type and amount of credit or other
loans we extend.
Based on market conditions and other factors,
including
to
regulatory standards, we continue
reinvest the majority of the proceeds from pay-downs
and maturities of investment securities in highly-rated
U.S. and non-U.S. securities, such as federal agency
MBS, sovereign debt securities and U.S. Treasury
and agency securities. The pace at which we reinvest
and the types of investment securities purchased will
depend on the impact of market conditions, the
implementation of regulatory standards, including
interpretation of those standards and other factors
over time. We expect these factors and the levels of
global interest rates to impact our reinvestment
program and future levels of NII and NIM.
Provision for Credit Losses
the
incurred
In January 2020, we adopted ASU 2016-13,
Financial Instruments - Credit Losses (ASC 326):
Measurement of Credit Losses on Financial
Instruments, which
loss
replaced
methodology with an expected loss methodology that
is referred to as the CECL methodology. The impact
of transitioning to ASC 326 on the consolidated
financial statements was an increase in the allowance
for credit losses and a decrease in retained earnings
of $3 million as of January 1, 2020. In 2020, we
recorded a provision of $88 million for credit losses
related to loans and financial assets held at amortized
cost and off-balance sheet commitments based on
the CECL methodology, reflecting both downward
credit migration within our loan portfolio and revision
in management’s economic outlook reflecting the
impact of the COVID-19 pandemic. This compares to
a $10 million provision for credit losses in 2019 and
$15 million in 2018, which were under the incurred
loss model.
Additional information is provided under “Loans
and Leases”
this
Management's Discussion and Analysis and in Note 4
to the consolidated financial statements in this Form
10-K.
"Financial Condition"
in
in
Expenses
Table 8: Expenses, provides the breakout of
expenses for the years ended December 31, 2020,
2019 and 2018.
TABLE 8: EXPENSES
(Dollars in
millions)
Compensation and
employee benefits(1)
Years Ended December 31,
2020
2019
2018
%
Change
2020 vs.
2019
%
Change
2019 vs.
2018
$ 4,450 $ 4,541 $ 4,780
(2) %
(5) %
Information systems
and communications
Transaction
processing services
Occupancy
Amortization of other
intangible assets(1)
Acquisition costs
Restructuring
charges, net
Other:
Professional
services
Other
Total other
Total expenses(1)
Number of
employees at year-
end
1,550
1,465
1,324
978
489
234
54
983
470
236
79
985
500
226
31
6
(1)
4
(1)
(32)
11
—
(6)
4
155
(4)
(2)
(7)
100
(71)
364
601
965
321
941
357
819
1,262
1,176
$ 8,716 $ 9,034 $ 9,015
13
(36)
(24)
(4)
(10)
15
7
—
39,439
39,103
40,142
1
(3)
(1) CRD contributed approximately $248 million in total expenses in 2020, approximately
$201 million in total expenses in 2019 and approximately $39 million in total expenses in
2018, which reflects their results from October 1, 2018, the date of acquisition, through
December 31, 2018.
Compensation and employee benefits expenses
decreased 2% in 2020 compared to 2019, primarily
due to lower headcount in high cost locations, lower
contractor spend and lower repositioning charges,
partially offset by higher incentive compensation.
Total headcount increased by approximately 1%
as of December 31, 2020 compared to December 31,
2019, primarily driven by hires in global hubs, partially
offset by a reduction in high cost locations.
Information
communications
systems and
expenses increased 6% in 2020 compared to 2019.
The increase was primarily related to higher software
costs and technology infrastructure investments.
Transaction processing services expenses
decreased 1% in 2020 compared to 2019, primarily
due to higher vendor savings, partially offset by
higher broker fees and sub-custody costs.
Occupancy expenses increased 4% in 2020
compared
to higher
to 2019, primarily due
repositioning charges, partially offset by benefits from
the advancement of our global footprint strategy.
Amortization
of
other
intangible
assets
decreased 1% in 2020 compared to 2019.
Other expenses decreased 24%
in 2020
compared to 2019, primarily driven by lower legal
expenses, marketing and travel costs, partially offset
by higher professional fees.
State Street Corporation | 71
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Acquisition Costs
Income Tax Expense
in 2018, related
We recorded approximately $54 million of
acquisition costs in 2020 compared to $79 million in
2019 and $31 million
to our
acquisition of CRD. As we integrate CRD into our
business, we expect to incur a total of approximately
$225 million of acquisition costs through 2021, after
which we will no longer distinguish certain CRD costs
as acquisition costs. As of December 31, 2020, we
have incurred $164 million of acquisition costs related
to CRD. We expect to incur any remaining significant
acquisition costs related to CRD in 2021.
Restructuring and Repositioning Charges
Repositioning Charges
Expenses for 2020 included a repositioning
charge of $133 million, consisting of $82 million of
compensation and employee benefits and $51 million
of occupancy expenses.
In January 2021, we
announced that we expect to eliminate approximately
1,200 positions, mostly in middle management, which
will be partially offset by in-sourcing and critical hires,
during 2021. These actions are expected to result in
savings of approximately $150 million in 2021 due to
automation
organizational
simplification enabling workforce rationalization and
reduction of our real estate footprint by approximately
13% of our total square footage. Total repositioning
charges were $110 million in 2019.
processes
and
of
The following table presents aggregate activity
for repositioning charges and activity related to
previous Beacon restructuring charges for the periods
indicated:
TABLE
CHARGES
9: RESTRUCTURING AND REPOSITIONING
(In millions)
Accrual Balance at
December 31, 2017
Accruals for Beacon
Accruals for
Repositioning Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2018
Accruals for Beacon
Accruals for
Repositioning Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2019
Accruals for Beacon
Accruals for
Repositioning
Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2020
Employee
Related
Costs
Real
Estate
Actions
Asset and
Other
Write-offs
Total
$
166
$
32
$
3
$
201
(7)
259
—
41
—
—
(7)
300
(115)
(36)
(2)
(153)
303
(2)
98
37
—
12
(209)
(42)
190
(4)
82
7
—
51
1
—
—
—
1
—
—
341
(2)
110
(251)
198
(4)
133
(78)
(52)
(1)
(131)
$
190
$
6
$
—
$
196
Income tax expense was $479 million in 2020
compared to $470 million in 2019. Our effective tax
rate was 16.5% in 2020, compared to 17.3% in 2019.
The effective tax rate for 2020 included a benefit from
the use of foreign tax credits. The effective tax rate for
2019 included a benefit attributable to a foreign legal
entity restructuring which was partially offset by legal
accruals and limitations on foreign tax credit benefits.
Additional
information regarding
tax
expense, including unrecognized tax benefits and tax
contingencies, are provided in Notes 13 and 22 to the
consolidated financial statements in this Form 10-K.
income
LINE OF BUSINESS INFORMATION
Our operations are organized into two lines of
business:
Investment
Investment Servicing and
Management, which are defined based on products
and services provided. The results of operations for
lines of business are not necessarily
these
comparable with those of other companies, including
companies in the financial services industry.
Investment Servicing,
through State Street
Institutional Services, State Street Global Markets,
State Street Global Exchange and CRD, provides
services for institutional clients, including mutual
funds, collective
funds and other
investment
investment pools, corporate and public retirement
plans, insurance companies, investment managers,
foundations and endowments worldwide. Products
include: custody; product accounting; daily pricing
and administration; master trust and master custody;
depotbank services (a fund oversight role created by
non-U.S.
cash
management; foreign exchange, brokerage and other
trading services; securities finance and enhanced
custody products; deposit and short-term investment
financing;
facilities;
investment
lease
investment manager
manager and alternative
operations outsourcing; performance,
risk and
compliance analytics; and financial data management
to support institutional investors.
record-keeping;
regulation);
loans and
is designed
technology offering which
Included within our Investment Servicing line of
business is CRD, which we acquired in October 2018.
The Charles River Investment Management solution
is a
to
automate and simplify the institutional investment
process across asset classes,
from portfolio
management and risk analytics through trading and
post-trade settlement, with integrated compliance and
managed data throughout. With the acquisition of
CRD, we took the first step in building our front-to-
back platform, State Street Alpha. Today our State
portfolio
Street
management, trading and execution, advanced data
aggregation, analytics and compliance tools, and
integration with other
industry platforms and
providers.
combines
platform
Alpha
State Street Corporation | 72
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Management, through State Street Global Advisors, provides a broad range of investment
management strategies and products for our clients. Our investment management strategies and products span the
risk/reward spectrum for equity, fixed income and cash assets, including core and enhanced indexing, multi-asset
strategies, active quantitative and fundamental active capabilities and alternative investment strategies. Our AUM is
currently primarily weighted to indexed strategies. In addition, we provide a breadth of services and solutions,
including environmental, social and governance investing, defined benefit and defined contribution and Global
Fiduciary Solutions (formerly Outsourced Chief Investment Officer). State Street Global Advisors is also a provider
of ETFs, including the SPDR® ETF brand. While management fees are primarily determined by the values of AUM
and the investment strategies employed, management fees reflect other factors as well, including the benchmarks
specified in the respective management agreements related to performance fees.
For information about our two lines of business, as well as the revenues, expenses and capital allocation
methodologies associated with them, refer to Note 24 to the consolidated financial statements in this Form 10-K.
Investment Servicing
TABLE 10: INVESTMENT SERVICING LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)
2020
2019
2018
Years Ended December 31,
% Change
2020 vs. 2019
% Change
2019 vs. 2018
Servicing fees
Foreign exchange trading services(1)
Securities finance
Software and processing fees(1)
Total fee revenue(1)
Net interest income
Total other income
Total revenue(1)
Provision for credit losses
Total expenses(1)
Income before income tax expense
Pre-tax margin
Average assets (in billions)
$
5,167
$
5,074
$
5,429
1,299
342
706
7,514
2,211
4
9,729
88
7,071
974
462
691
7,201
2,590
43
9,834
10
7,140
1,071
543
443
7,486
2,691
6
10,183
15
7,081
$
$
2,570
$
2,684
$
3,087
26 %
27 %
30 %
266.4
$
220.3
$
220.2
2 %
33
(26)
2
4
(15)
nm
(1)
780
(1)
(4)
(7) %
(9)
(15)
56
(4)
(4)
nm
(3)
(33)
1
(13)
(1) CRD contributed approximately $420 million and $248 million in total revenue and total expenses, respectively, in 2020, approximately $385 million and $201 million
in total revenue and total expenses, respectively, in 2019 and approximately $119 million and $39 million in total revenue and total expenses, respectively, in 2018,
which reflects their results from October 1, 2018, the date of acquisition, through December 31, 2018.
nm Not meaningful
Servicing Fees
Servicing fees, as presented in Table 10: Investment Servicing Line of Business Results, increased 2% in 2020
compared to 2019 primarily due to higher average market levels and client activity, primarily in the first half of 2020,
partially offset by normal pricing headwinds. FX rates impacted servicing fees positively by 1% in 2020 relative to
2019 and negatively by 1% in 2019 relative to 2018.
Servicing fees generated outside the U.S. were approximately 47% of total servicing fees in each of 2020,
2019 and 2018.
TABLE 11: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY PRODUCT
(In billions)
Collective funds
Mutual funds
Insurance and other products
Pension products
Total
$
$
December 31, 2020
December 31, 2019
December 31, 2018
% Change
2020 vs. 2019
% Change
2019 vs. 2018
10,878 $
9,796 $
10,882
9,432
7,599
9,221
8,417
6,924
38,791 $
34,358 $
8,999
7,912
8,220
6,489
31,620
11 %
18
12
10
13
9 %
17
2
7
9
TABLE 12: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY ASSET CLASS
(In billions)
Equities
Fixed-income
Short-term and other investments
Total
December 31, 2020
December 31, 2019
December 31, 2018
% Change
2020 vs. 2019
% Change
2019 vs. 2018
$
$
21,626 $
19,301 $
12,834
4,331
10,766
4,291
38,791 $
34,358 $
18,041
9,758
3,821
31,620
12 %
19
1
13
7 %
10
12
9
State Street Corporation | 73
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 13: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(1)
(In billions)
Americas
Europe/Middle East/Africa
Asia/Pacific
Total
$
$
December 31, 2020
December 31, 2019
December 31, 2018
% Change
2020 vs. 2019
% Change
2019 vs. 2018
28,245 $
25,018 $
8,101
2,445
7,325
2,015
38,791 $
34,358 $
23,203
6,699
1,718
31,620
13 %
11
21
13
8 %
9
17
9
(1) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
Asset servicing mandates newly announced in 2020 totaled approximately $787 billion, with an increasing
proportion incorporating State Street Alpha, compared to $1.84 trillion in 2019. Servicing assets remaining to be
installed in future periods totaled approximately $436 billion as of December 31, 2020, which will be reflected in
AUC/A in future periods after installation and will generate servicing fee revenue in subsequent periods. The full
revenue impact of such mandates will be realized over several quarters as the assets are installed and additional
services are added over that period.
New asset servicing mandates may be subject to completion of definitive agreements, approval of applicable
boards and shareholders and customary regulatory approvals. New asset servicing mandates and servicing assets
remaining to be installed in future periods exclude certain new business which has been contracted, but for which
the client has not yet provided permission to publicly disclose and the expected installation date extends beyond
one quarter. These excluded assets, which from time to time may be significant, will be included in new asset
servicing mandates and reflected in servicing assets remaining to be installed in the period in which the client
provides its permission. Servicing mandates and servicing assets remaining to be installed in future periods are
presented on a gross basis and therefore also do not include the impact of clients who have notified us during the
period of their intent to terminate or reduce their relationship with us, which may from time to time be significant.
With respect to these new servicing mandates, once installed we may provide various services, including
accounting, bank loan servicing, compliance reporting and monitoring, custody, depository banking services, FX,
fund administration, hedge fund servicing, middle office outsourcing, performance and analytics, private equity
administration, real estate administration, securities finance, transfer agency and wealth management services.
Revenues associated with new servicing mandates may vary based on the breadth of services provided and the
timing of installation, and the types of assets.
As a result of a decision to diversify providers, one of our large asset servicing clients has advised us it expects
to move a significant portion of its ETF assets currently with State Street to one or more other providers, pending
necessary approvals. We expect to continue as a significant service provider for this client after this transition and
for the client to continue to be meaningful to our business. The transition is expected to begin in 2022 but will
principally occur in 2023. For the year ended December 31, 2020, the fee revenue associated with the transitioning
assets represented approximately 1.5% of our total fee revenue. The total revenue and income impact of this
transition will depend upon a range of factors, including potential growth in our continuing business with the client
and expense reductions associated with the transition.
For additional information about the impact of worldwide equity and fixed-income valuations on our fee
revenue, as well as other key drivers of our servicing fee revenue, refer to "Fee Revenue" in "Consolidated Results
of Operations" included in this Management's Discussion and Analysis.
Foreign Exchange Trading Services
Foreign exchange trading services revenue, as presented in Table 10: Investment Servicing Line of Business
Results, increased 33% in 2020 compared to 2019, primarily due to higher volumes and market volatility. Foreign
exchange trading services is composed of revenue generated by FX trading and revenue generated by brokerage
and other trading services, which made up 68% and 32%, respectively, of foreign exchange trading services
revenue in 2020.
We primarily earn FX trading revenue by acting as a principal market-maker through both "direct sales and
trading” and “indirect FX trading.”
• Direct sales and trading: Represent FX transactions at negotiated rates with clients and investment
managers that contact our trading desk directly. These principal market-making activities include
transactions for funds serviced by third party custodians or prime brokers, as well as those funds under
custody with us.
•
Indirect FX trading: Represents FX transactions with clients, for which we are the funds' custodian,
or their investment managers, routed to our FX desk through our asset-servicing operation. We execute
indirect FX trades as a principal at rates disclosed to our clients.
State Street Corporation | 74
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our FX trading revenue is influenced by multiple
factors, including: the volume and type of client FX
transactions and related spreads; currency volatility,
reflecting market conditions; and our management of
exchange rate, interest rate and other market risks
associated with our FX activities. The relative impact
of these factors on our total FX trading revenues
often differs from period to period. For example,
assuming all other factors remain constant, increases
or decreases in volumes or bid-offer spreads across
product mix tend to result in increases or decreases,
as the case may be, in client-related FX revenue.
trading
to either direct sales and
Our clients that utilize indirect FX trading can, in
addition to executing their FX transactions through
dealers not affiliated with us, transition from indirect
FX
trading
execution, including our “Street FX” service, or to one
of our electronic trading platforms. Street FX, in which
we continue to act as a principal market-maker,
enables our clients to define their FX execution
strategy and automate
trade execution
process, both for funds under custody with us as well
as those under custody at another bank.
the FX
We also earn foreign exchange trading services
revenue through "electronic FX services" and "other
trading,
transition management and brokerage
revenue."
• Electronic FX services: Our clients
may choose to execute FX transactions
through one of our electronic
trading
transactions generate
platforms. These
revenue through a “click” fee.
• Other trading, transition management
and brokerage revenue: As our clients look to
us to enhance and preserve portfolio values,
they may choose to utilize our Transition or
Currency Management
or
transact with our Equity Trade execution
group. These transactions, which are not
limited
foreign exchange, generate
revenue via commissions charged for trades
transacted during the management of these
portfolios.
capabilities
to
Securities Finance
Our securities finance business consists of three
components:
(1) an agency lending program for State Street
Global Advisors managed investment funds with a
broad range of investment objectives, which we refer
to as the State Street Global Advisors lending funds;
(2) an agency lending program for third-party
investment managers and asset owners, which we
refer to as the agency lending funds; and
(3) security lending transactions which we enter
into as principal, which we refer to as our enhanced
custody business.
Securities finance revenue earned from our
agency lending activities, which is composed of our
split of both the spreads related to cash collateral and
the fees related to non-cash collateral, is principally a
function of the volume of securities on loan, the
interest rate spreads and
the
fees earned on
underlying collateral and our share of the fee split.
As principal, our enhanced custody business
borrows securities from the lending client or other
market participants and then lends such securities to
the subsequent borrower, either our client or a broker/
dealer. We act as principal when the lending client is
unable to, or elects not to, transact directly with the
market and execute the transaction and furnish the
securities. In our role as principal, we provide support
to the transaction through our credit rating. While we
source a significant proportion of the securities
furnished by us in our role as principal from third
parties, we have the ability to source securities
through assets under custody from clients who have
designated us as an eligible borrower.
Securities finance revenue, as presented in
Table 10: Investment Servicing Line of Business
Results, decreased 26% in 2020 compared to 2019,
reflecting decreases in enhanced custody balances
due to client deleveraging and lower agency lending
revenues due to lower spreads.
Market influences may continue to affect client
demand for securities finance, and as a result our
revenue from, and the profitability of, our securities
lending activities in future periods. In addition, the
constantly evolving regulatory environment, including
revised or proposed capital and liquidity standards,
interpretations of those standards, and our own
balance sheet management activities, may influence
modifications to the way in which we deliver our
agency lending or enhanced custody businesses, the
volume of our securities lending activity and related
revenue and profitability in future periods.
Software and Processing Fees
Software and processing fees revenue includes
diverse types of fees and revenue, including fees
from software licensing and maintenance, fees from
our structured products business and other revenue
including equity
joint venture
investments, gains and losses on sales of other
assets, market-related adjustments and
income
associated with certain tax-advantaged investments.
from our
income
State Street Corporation | 75
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Software and processing fees revenue, presented in Table 10: Investment Servicing Line of Business Results,
increased 2% in 2020 compared to 2019 and reflects approximately $406 million from CRD in 2020. We acquired
CRD on October 1, 2018. Revenue related to the front office solutions provided by CRD is primarily driven by the
sale of term software licenses and software as service arrangements, including professional services such as
consulting and implementation services, software support and maintenance. Approximately 50%-70% of revenue
associated with a sale of software to be installed on-premise is recognized at a point in time when the customer
benefits from obtaining access to and use of the software license, with the percentage varying based on the length
of the contract and other contractual terms. The remainder of revenue for on-premise installations is recognized
over the length of the contract as maintenance and other services are provided. Upon renewal of an on-premises
software contract, the same pattern of revenue recognition is followed with 50%-70% recognized upon renewal and
the balance recognized over the term of the contract. Revenue for a Software as a Service (SaaS) related
arrangement, where the customer does not take possession of the software, is recognized over the term of the
contract as services are provided. Upon renewal of a SaaS arrangement, revenue continues to be recognized as
services are provided under the new contract. As a result of these differences in how portions of CRD revenue are
accounted for, CRD revenue may vary more than other business units quarter to quarter. CRD contributed
approximately $420 million in total revenue in 2020, compared to approximately $385 million in 2019, including
approximately $370 million in software and processing fees and $15 million in brokerage and other trading services
within foreign exchange trading services. The increase in revenue is primarily driven by SaaS revenue and
professional services.
Amortization of
impacted software and processing
investments negatively
tax advantage
fees by
approximately $88 million and $52 million in 2020 and 2019, respectively.
In addition, FX and market-related adjustments, which also includes certain fair value adjustments, impacted
software and processing fees by approximately $26 million and $16 million in 2020 and 2019, respectively.
Expenses
Total expenses for Investment Servicing decreased 1% in 2020 compared to 2019, primarily due to on-going
expense management initiatives, partially offset by technology infrastructure and operational investments. Total
expenses contributed by CRD in 2020 were approximately $248 million, compared to $201 million in 2019.
Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations"
included in this Management's Discussion and Analysis.
Investment Management
TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
(Dollars in millions, except where otherwise noted)
2020
2019
2018
Years Ended December 31,
% Change
2020 vs.
2019
% Change
2019 vs.
2018
Management fees(1)(2)
Foreign exchange trading services(1)(3)
Securities finance
Software and processing fees(4)
Total fee revenue
Net interest income
Total revenue
Total expenses
Income before income tax expense
Pre-tax margin
Average assets (in billions)
$
1,880
$
1,824
$
1,899
64
14
27
1,985
(11)
1,974
1,471
84
9
29
1,946
(24)
1,922
1,535
82
—
(5)
1,976
(20)
1,956
1,544
$
$
503
$
387
$
412
25 %
20 %
21 %
2.9
$
3.0
$
3.2
3 %
(24)
nm
nm
2
(54)
3
(4)
30
(4) %
2
nm
nm
(2)
20
(2)
(1)
(6)
(1) Certain fees associated with our GLD ETFs have been reclassified from Foreign exchange trading services to Management fees to better reflect the nature of those
fees. Prior periods have been reclassified to conform to current-period presentation. These fees were approximately $81 million, $53 million and $48 million in 2020,
2019 and 2018, respectively.
(2) Includes revenues from SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust AUM where we are not the investment manager but act as the marketing
agent.
(3) Includes revenue for reimbursements received for certain ETFs associated with State Street Global Advisors where we act as the distribution and marketing agent.
(4) Includes other revenue items that are primarily driven by equity market movements.
nm Not meaningful
Investment Management total revenue increased 3% in 2020 compared to 2019.
State Street Corporation | 76
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management Fees
Management fees increased 3% in 2020 compared to 2019, primarily due to higher average market levels and
ETF and cash net inflows, partially offset by net institutional outflows.
Management fees generated outside the U.S. were approximately 26% of total management fees in 2020
compared to approximately 27% in both 2019 and 2018.
TABLE 15: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH
December 31, 2020
December 31, 2019
December 31, 2018
% Change
2020 vs. 2019
% Change
2019 vs. 2018
(In billions)
Equity:
Active
Passive
Total equity
Fixed-income:
Active
Passive
Total fixed-income
Cash(1)
Multi-asset-class solutions:
Active
Passive
Total multi-asset-class solutions
Alternative investments(2):
Active
Passive
Total alternative investments
$
83 $
88 $
2,089
2,172
1,903
1,991
92
441
533
359
26
164
190
23
190
213
89
379
468
324
24
133
157
21
155
176
80
1,464
1,544
81
341
422
287
19
113
132
21
105
126
(6) %
10 %
10
9
3
16
14
11
8
23
21
10
23
21
11
30
29
10
11
11
13
26
18
19
—
48
40
24
Total
$
3,467 $
3,116 $
2,511
(1) Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(2) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for
the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
TABLE 16: EXCHANGE-TRADED FUNDS BY ASSET CLASS(1)
(In billions)
Alternative Investments(2)
Cash
Equity
Multi Asset
Fixed-Income
December 31, 2020
December 31, 2019
December 31, 2018
$
83 $
56 $
14
706
1
102
9
618
—
85
% Change
2020 vs. 2019
% Change
2019 vs. 2018
48 %
30 %
56
14
100
20
18
—
28
—
29
28
43
9
482
—
66
600
Total Exchange-Traded Funds
$
906 $
768 $
(1) ETFs are a component of AUM presented in the preceding table.
(2) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for
the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
TABLE 17: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT(1)
(In billions)
North America
Europe/Middle East/Africa
Asia/Pacific
Total
December 31, 2020
December 31, 2019
December 31, 2018
% Change
2020 vs. 2019
% Change
2019 vs. 2018
$
$
2,414 $
2,115 $
509
544
493
508
3,467 $
3,116 $
1,731
421
359
2,511
14 %
3
7
11
22 %
17
42
24
(1) Geographic mix is based on client location or fund management location.
State Street Corporation | 77
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 18: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY
(In billions)
Equity
Fixed-
Income
Cash(1)
Multi-Asset-
Class
Solutions
Alternative
Investments(2)
Total
Balance as of December 31, 2017
$
1,745 $
414 $
330 $
147 $
146 $
2,782
Long-term institutional flows, net(3)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
(45)
(3)
—
(48)
(142)
(11)
(153)
12
7
—
19
(7)
(4)
(11)
—
6
(50)
(44)
3
(2)
1
(3)
—
—
(3)
(10)
(2)
(12)
(2)
(2)
—
(4)
(10)
(6)
(16)
(38)
8
(50)
(80)
(166)
(25)
(191)
Balance as of December 31, 2018
$
1,544 $
422 $
287 $
132 $
126 $
2,511
Long-term institutional flows, net(3)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
26
13
—
39
404
4
408
(7)
15
—
8
38
—
38
—
—
31
31
6
—
6
3
—
—
3
22
—
22
16
6
—
22
28
—
28
38
34
31
103
498
4
502
Balance as of December 31, 2019
$
1,991 $
468 $
324 $
157 $
176 $
3,116
Long-term institutional flows, net(3)
Exchange-traded fund flows, net
Cash fund flows, net
Total flows, net
Market appreciation (depreciation)
Foreign exchange impact
Total market/foreign exchange impact
(99)
13
—
(86)
238
29
267
2
12
—
14
43
8
51
(1)
4
32
35
(1)
1
—
10
—
—
10
19
4
23
(12)
(100)
15
—
3
30
4
34
44
32
(24)
329
46
375
Balance as of December 31, 2020
$
2,172 $
533 $
359 $
190 $
213 $
3,467
(1) Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(2) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for
the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.
(3) Amounts represent long-term portfolios, excluding ETFs.
Expenses
Total expenses for Investment Management decreased 4% in 2020 compared to 2019, primarily due to savings
from on-going expense management initiatives.
Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations"
included in this Management's Discussion and Analysis.
State Street Corporation | 78
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
TABLE 19: AVERAGE STATEMENT OF CONDITION(1)
the
and
sheet
is primarily driven by
The structure of our consolidated statement of
liabilities
condition
Investment Servicing and
generated by our
Investment Management
lines of business. Our
clients' needs and our operating objectives determine
currency
volume, mix
balance
denomination. As our clients execute their worldwide
cash management and investment activities, they
investments
utilize deposits and short-term
that
liabilities. These
the majority of our
constitute
liabilities are generally in the form of interest-bearing
transaction account deposits, which are denominated
in a variety of currencies; non-interest-bearing
demand deposits; and repurchase agreements, which
generally serve as short-term investment alternatives
for our clients.
Deposits and other liabilities resulting from client
initiated transactions are invested in assets that
generally have contractual maturities significantly
longer than our liabilities; however, we evaluate the
operational nature of our deposits and seek to
maintain appropriate short-term liquidity of those
liabilities that are not operational in nature and
maintain longer-termed assets for our operational
deposits. Our assets consist primarily of securities
held in our AFS or HTM portfolios and short-duration
financial
interest-bearing
deposits with banks and securities purchased under
resale agreements. The actual mix of assets is
determined by
the client
liabilities and our desire to maintain a well-diversified
portfolio of high-quality assets.
instruments, such as
the characteristics of
(In millions)
Assets:
Interest-bearing deposits with
banks
Securities purchased under
resale agreements
Trading account assets
U.S. Treasury and federal
agencies:
Years Ended December 31,
2020
2019
2018
$
76,588 $
48,500 $
54,328
3,452
878
2,506
884
2,901
1,051
Direct obligations
14,017
14,249
16,226
Mortgage-and asset-backed
securities
46,799
State and political subdivisions
1,717
42,390
1,869
32,223
5,481
Other investments:
Asset-backed securities
11,096
9,734
13,323
Collateralized mortgage-
backed securities and
obligations
Other debt investments and
equity securities
Investment securities held to
maturity purchased under
money market liquidity facility
Total Investment securities
Loans and leases
Other interest-earning assets
Average total interest-
earning assets
682
896
1,549
26,681
22,630
19,268
8,183
109,175
27,525
11,256
—
91,768
24,073
14,160
—
88,070
23,573
15,714
228,874
181,891
185,637
Cash and due from banks
3,849
3,390
3,178
Other non-interest-earning
assets
36,611
38,053
34,570
Average total assets
$ 269,334 $ 223,334 $ 223,385
Liabilities and shareholders’
equity:
Interest-bearing deposits:
U.S.
Non-U.S.
Total interest-bearing deposits(2)
Securities sold under
repurchase agreements
Short-term borrowings under
money market liquidity facility
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Average total interest-
bearing liabilities
Non-interest-bearing deposits(2)
Other non-interest-bearing
liabilities
Preferred shareholders’ equity
Common shareholders’ equity
$
87,444 $
67,547 $
54,953
68,806
61,301
70,623
156,250
128,848
125,576
2,615
1,616
2,048
8,207
2,226
14,371
3,176
—
1,524
11,474
4,103
—
1,327
10,686
4,956
186,845
147,565
144,593
36,975
29,414
35,832
20,464
2,569
22,481
21,299
3,653
21,403
19,804
3,327
19,829
Average total liabilities and
shareholders’ equity
$ 269,334 $ 223,334 $ 223,385
(1) Additional information about our average statement of condition, primarily
our interest-earning assets and interest-bearing liabilities, is provided in "Net
Interest Income" included in this Management's Discussion and Analysis.
(2) Total deposits averaged $193.23 billion in 2020 compared to $158.26
billion and $161.41 billion in 2019 and 2018, respectively.
State Street Corporation | 79
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment Securities
TABLE 20: CARRYING VALUES OF INVESTMENT
SECURITIES
As of December 31,
2020
2019
2018
(In millions)
Available-for-sale:
U.S. Treasury and federal
agencies:
Direct obligations
$
6,575 $
3,487 $
1,039
Mortgage-backed securities
14,305
17,838
15,968
Total U.S. Treasury and federal
agencies
Asset-backed securities:
Student loans(1)
Credit cards
Collateralized loan obligations
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other
Total non-U.S. debt securities
State and political subdivisions
Collateralized mortgage
obligations
Other U.S. debt securities
20,880
21,325
17,007
314
90
2,966
3,370
1,996
2,291
12,539
12,903
29,729
1,548
78
3,443
531
89
1,820
2,440
1,980
2,179
12,373
8,658
25,190
1,783
104
2,973
541
583
593
1,717
1,682
1,574
12,793
6,602
22,651
1,918
197
1,658
Total
$
59,048 $ 53,815 $ 45,148
Held-to-maturity(2):
U.S. Treasury and federal
agencies:
Direct obligations
$
6,057 $ 10,311 $ 14,794
Mortgage-backed securities
36,883
26,297
21,647
Total U.S. Treasury and federal
agencies
Asset-backed securities:
Student loans(1)
Credit cards
Other
42,940
36,608
36,441
4,774
3,783
3,191
—
—
—
—
193
1
Total asset-backed securities
4,774
3,783
3,385
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other
Total non-U.S. debt securities
Collateralized mortgage
obligations
Held-to-maturity under money
market mutual fund liquidity
facility(3)
303
—
342
—
645
572
366
—
328
—
694
697
638
223
358
46
1,265
823
3,300
—
—
Total
$
52,231 $ 41,782 $ 41,914
(1) Primarily comprised of securities guaranteed by the federal government
with respect to at least 97% of defaulted principal and accrued interest on
the underlying loans.
(2) Includes securities at amortized cost or fair value on the date of transfer
from AFS.
(3) Consists entirely of U.S. securities.
Additional
investment
securities portfolio is provided in Note 3 to the
consolidated financial statements in this Form 10-K.
information about our
the
We manage our investment securities portfolio
to align with
rate and duration
interest
characteristics of our client liabilities and in the
context of the overall structure of our consolidated
statement of condition, in consideration of the global
interest rate environment. We consider a well-
diversified, high-credit quality investment securities
portfolio
the
management of our consolidated statement of
condition.
important element
to be an
in
Average duration of our investment securities
portfolio was 3.0 years and 2.7 years as of December
31, 2020 and December 31, 2019, respectively. The
increase in securities duration is primarily driven by
continued growth in the investment portfolio.
Approximately 92% and 90% of the carrying
value of the portfolio was rated “AAA” or “AA” as of
December 31, 2020 and December 31, 2019,
respectively.
TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT
RATING (EXCLUDING SECURITIES PURCHASED UNDER THE
MMLF PROGRAM)
December 31, 2020
December 31, 2019
AAA(1)
AA
A
BBB
Below BBB
78 %
14
4
4
—
100 %
77 %
13
5
5
—
100 %
(1) Includes U.S. Treasury and federal agency securities that are split-rated,
“AAA” by Moody’s Investors Service and “AA+” by Standard & Poor’s and
also includes Agency MBS securities which are not explicitly rated but which
have an explicit or assumed guarantee from the U.S. government.
As of December 31, 2020 and December 31,
2019, the investment portfolio was diversified with
respect to asset class composition. The following
table presents
these asset
classes.
the composition of
TABLE 22: INVESTMENT PORTFOLIO BY ASSET CLASS
December 31, 2020
December 31, 2019
U.S. Agency
Mortgage-backed
securities
Foreign sovereign
U.S. Treasuries
Asset-backed
securities
Other credit(1)
39 %
41 %
20
11
11
19
19
14
11
15
100 %
100 %
(1) Includes the securities purchased under the MMLF program.
Non-U.S. Debt Securities
Approximately 27% of the aggregate carrying
value of our investment securities portfolio was non-
U.S. debt securities as of both December 31, 2020
and December 31, 2019.
State Street Corporation | 80
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TABLE 23: NON-U.S. DEBT SECURITIES
(In millions)
December 31, 2020
December 31, 2019
Available-for-sale:
European(1)
Canada
France
Australia
Germany
Spain
Belgium
Austria
Netherlands
Ireland
Finland
United Kingdom
Asian(1)
Italy
Japan
Sweden
Hong Kong
Luxembourg
Brazil
Norway
Other(2)
Total
Held-to-maturity:
Singapore
Australia
Spain
United Kingdom
Germany
Other(3)
Total
$
$
$
$
3,275 $
3,163
2,829
2,809
2,155
1,642
1,618
1,544
1,528
1,226
1,222
1,209
1,165
1,014
560
212
162
83
74
22
2,217
29,729 $
342 $
90
84
84
—
45
645 $
2,101
2,611
2,223
2,409
1,944
1,531
977
1,398
1,524
1,235
846
1,608
581
1,113
1,363
156
617
124
93
51
685
25,190
214
109
85
126
112
48
694
(1) Consists entirely of supranational bonds.
(2) Included approximately $2,166 million and $618 million as of December 31,
2020 and December 31, 2019, respectively, related to supranational bonds.
(3) Included approximately $45 million and $46 million as of December 31, 2020
and December 31, 2019, respectively, related to Italy and Portugal, all of which
were related to MBS.
Approximately 80% and 74% of the aggregate
carrying value of these non-U.S. debt securities was
rated “AAA” or “AA” as of December 31, 2020 and
December 31, 2019, respectively. The majority of
these securities comprised senior positions within the
security structures; these positions have a level of
protection provided through subordination and other
forms of credit protection. As of December 31, 2020
and December 31, 2019, approximately 21% and
27%, respectively, of the aggregate carrying value of
these non-U.S. debt securities was floating-rate.
As of December 31, 2020, our non-U.S. debt
securities had an average market-to-book ratio of
101.5%, and an aggregate pre-tax net unrealized
gain of $439 million, composed of gross unrealized
gains of $452 million and gross unrealized losses of
$13 million. These unrealized amounts included:
• a pre-tax net unrealized gain of $375
million, composed of gross unrealized gains
of $384 million and gross unrealized losses of
$9 million, associated with non-U.S. AFS debt
securities; and
• a pre-tax net unrealized gain of $64
million, composed of gross unrealized gains
of $68 million and gross unrealized losses of
$4 million, associated with non-U.S. HTM
debt securities.
As of December 31, 2020,
the underlying
for non-U.S. MBS and ABS primarily
collateral
included U.K., Australian,
Italian and Dutch
mortgages. The securities listed under “Canada” were
composed of Canadian government securities and
provincial bonds, corporate debt and non-U.S.
agency securities. The securities
listed under
“France” were composed of sovereign bonds,
corporate debt, covered bonds, ABS and Non-U.S.
agency securities. The securities listed under “Japan”
were
Japanese
government securities.
substantially
composed
of
Municipal Obligations
We carried approximately $1.5 billion of
municipal securities classified as state and political
subdivisions in our investment securities portfolio as
of December 31, 2020, as shown in Table 20:
Carrying Values of Investment Securities, all of which
were classified as AFS. As of December 31, 2020, we
also provided approximately $9.4 billion of credit and
liquidity facilities to municipal issuers.
TABLE 24: STATE AND MUNICIPAL OBLIGORS(1)
(Dollars in millions)
December 31, 2020
State of Issuer:
Texas
California
New York
Massachusetts
Total
December 31, 2019
State of Issuer:
Texas
California
New York
Massachusetts
Total
Total
Municipal
Securities(2)
Credit and
Liquidity
Facilities(3)
Total
% of Total
Municipal
Exposure
$
268 $
2,282 $ 2,550
23 %
113
297
382
$
1,060 $
2,174
1,363
2,287
1,660
927
1,309
6,746 $ 7,806
21
15
12
$
275 $
2,345 $ 2,620
23 %
111
283
442
2,114
1,531
809
2,225
1,814
1,251
20
16
11
$
1,111 $
6,799 $ 7,910
(1) Represented 5% or more of our aggregate municipal credit exposure of approximately
$11.06 billion and $11.32 billion across our businesses as of December 31, 2020 and
December 31, 2019, respectively.
(2) Includes approximately $0.08 billion of municipal HTM MMLF securities.
(3) Includes municipal loans which are also presented within Table 26: U.S. and Non-U.S.
Loans and Leases.
State Street Corporation | 81
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our aggregate municipal securities exposure presented in Table 24: State and Municipal Obligors, was
concentrated primarily with highly-rated counterparties, with approximately 87% of the obligors rated “AAA” or “AA”
as of December 31, 2020. As of that date, approximately 26% and 74% of our aggregate municipal securities
exposure was associated with general obligation and revenue bonds, respectively. The portfolios are also diversified
geographically, with the states that represent our largest exposures widely dispersed across the U.S.
Additional information with respect to our assessment of impairment of our municipal securities is provided in
Note 3 to the consolidated financial statements in this Form 10-K.
TABLE 25: CONTRACTUAL MATURITIES AND YIELDS
As of December 31, 2020
Under 1 Year
1 to 5 Years
6 to 10 Years
Over 10 Years
Total
(Dollars in millions)
Available-for-sale(1):
U.S. Treasury and federal agencies:
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Direct obligations
$ 1,661
.91 % $ 2,771
.51 % $ 2,143
1.54 % $
—
— % $ 6,575
Mortgage-backed securities
127
3.46
619
2.52
2,828
.90
10,731
3.19
14,305
Total U.S. treasury and federal
agencies
1,788
Asset-backed securities:
Student loans
Credit cards
Collateralized loan obligations
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other
Total non-U.S. debt securities
State and political subdivisions(2)
Collateralized mortgage obligations
Other U.S. debt securities
115
1.77
—
76
191
260
337
3,151
1,329
5,077
136
—
452
—
1.19
.67
.61
.51
2.14
6.26
—
2.90
3,390
90
—
1,077
1,167
527
1,247
8,151
9,652
19,577
626
—
.68
—
1.26
.60
.39
1.99
1.01
5.39
—
2,896
2.38
4,971
10,731
20,880
—
90
838
928
116
272
939
1,752
3,079
—
.92
1.36
.53
.56
.77
.69
559
5.39
—
95
—
2.53
109
—
975
1,084
.35
—
1.50
1,093
1.08
.41
.91
314
90
2,966
3,370
1,996
2,291
12,539
1.93
12,903
29,729
5.78
3.57
—
1,548
78
3,443
435
298
170
1,996
227
78
—
Total
$ 7,644
$ 27,656
$ 9,632
$ 14,116
$ 59,048
Held-to-maturity(1):
U.S. Treasury and federal agencies:
Direct obligations
$ 3,480
2.69 % $ 2,555
1.79 % $
—
— % $
22
.58 % $ 6,057
Mortgage-backed securities
204
2.59
423
3.04
5,036
2.13
31,220
2.55
36,883
Total U.S. treasury and federal
agencies
Asset-backed securities:
Student loans
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Government securities
Total non-U.S. debt securities
Collateralized mortgage obligations
Total
Held-to-maturity under money market
mutual fund liquidity facility
3,684
2,978
5,036
31,242
42,940
.50
.60
.43
1.42
350
350
87
342
429
139
4,602
155
155
23
—
23
265
3,421
.52
1.02
—
.94
667
667
—
—
—
21
.82
—
—
1.22
3,602
3,602
193
—
193
147
1.11
.18
—
1.32
4,774
4,774
303
342
645
572
5,724
35,184
48,931
3,300
1.39
—
—
—
—
—
—
3,300
Total held-to-maturity securities
$ 7,902
$ 3,421
$ 5,724
$ 35,184
$ 52,231
(1) The maturities of MBS, ABS and CMOs are based on expected principal payments.
(2) Yields were calculated on a FTE basis, using applicable statutory tax rates (21.0% as of December 31, 2020).
State Street Corporation | 82
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Loans and Leases
TABLE 26: U.S. AND NON- U.S. LOANS AND LEASES
2020
As of December 31,
2018
2017
2019
Additional information about all of our loan
segments, as well as underlying classes, is provided
in Note 4 to the consolidated financial statements in
this Form 10-K.
2016
$ 19,036 $ 18,762 $ 19,479 $ 18,696 $ 16,412
2,096
1,766
874
—
—
—
98
267
27
338
21,132
20,528
20,353
19,061
16,777
6,793
5,781
5,436
3,837
2,476
—
—
—
396
504
No
loans were modified
troubled debt
restructurings as of both December 31, 2020 and
December 31, 2019.
in
TABLE 27: CONTRACTUAL MATURITIES FOR LOANS
(In millions)
Domestic:
As of December 31, 2020
Under 1
year
1 to 5
years
Over 5
years
Total
Commercial and financial
$ 11,783 $ 5,763 $ 1,490 $ 19,036
Commercial real estate
43
571
1,482
2,096
6,793
5,781
5,436
4,233
2,980
Total domestic
11,826
6,334
2,972
21,132
(In millions)
Domestic(1):
Commercial
and financial
Commercial
real estate
Lease
financing(2)
Total
domestic
Foreign(1):
Commercial
and financial
Lease
financing(2)
Total
foreign
Total loans and
leases(3)(4)
Average loans
and leases
$ 27,925 $ 26,309 $ 25,789 $ 23,294 $ 19,757
$ 27,525 $ 24,073 $ 23,573 $ 21,916 $ 19,013
(1) Domestic and foreign categorization is based on the borrower’s country of domicile.
(2) We wound down our lease financing business in 2018.
(3) Includes $2,982 million and $3,256 million of overdrafts as of December 31, 2020 and
December 31, 2019, respectively.
(4) As of December 31, 2020, floating rate loans totaled $22,537 million and fixed rate
loans totaled $2,404 million.
The
the
commercial and financial segment as of December
31, 2020 compared to December 31, 2019 was
primarily driven by an increase in fund finance loans,
partially offset by a decrease in securities finance
loans.
in domestic
increase
loans
in
As of December 31, 2020 and December 31,
2019, our leveraged loans totaled approximately
$4.17 billion and $4.46 billion, respectively. We sold
$353 million leveraged loans in 2020. We recorded a
charge-off against the allowance for these loans prior
to the sale of these loans of $41 million in 2020.
In addition, we had binding unfunded
commitments as of December 31, 2020 and
December 31, 2019 of $149 million and $176 million,
in such syndications.
respectively,
these unfunded
Additional
commitments
the
consolidated financial statements in this Form 10-K.
information about
is provided
to participate
in Note 12
to
to
to Note 4
the consolidated
These leveraged loans, which are primarily rated
“speculative” under our internal risk-rating framework
(refer
financial
statements in this Form 10-K), are externally rated
“BBB,” “BB” or “B,” with approximately 85% and 86%
of the loans rated “BB” or “B” as of December 31,
2020 and December 31, 2019, respectively. Our
investment strategy involves generally limiting our
investment to larger, more liquid credits underwritten
by major global financial institutions, applying our
internal credit analysis process to each potential
investment and diversifying our exposure by
counterparty and industry segment. However, these
loans have significant exposure to credit losses
relative to higher-rated loans in our portfolio.
Foreign:
Commercial and financial
Total foreign
3,111
3,111
3,182
3,182
500
500
6,793
6,793
Total loans
$ 14,937 $ 9,516 $ 3,472 $ 27,925
TABLE 28: CLASSIFICATION OF LOAN BALANCES DUE
AFTER ONE YEAR
(In millions)
As of December 31, 2020
Loans with predetermined interest rates
Loans with floating or adjustable interest rates
Total
Allowance for credit losses
$
$
TABLE 29: ALLOWANCE FOR CREDIT LOSSES
2,327
10,658
12,985
Years Ended December 31,
2020
2019
2018
2017
2016
$
93 $
83 $
72 $
77 $
66
83
10
14
2
10
3
3
(1)
(6)
4
(In millions)
Allowance for credit
losses:
Beginning balance(1)
Provision for credit
losses (funded
commitments)(2)
Provisions for credit
losses (unfunded
commitments)(3)
Provisions for credit
losses (held-to-
maturity securities
and all other)
Charge-offs(4)
FX translation
2
(41)
8
—
(3)
(2)
—
(1)
(1)
—
(1)
—
—
(3)
—
77
Ending balance
$ 148 $
91 $
83 $
72 $
(1) Beginning January 1, 2020, we adopted ASU 2016-13. Prior to 2020, we
recognized an allowance for loan losses under an incurred loss model. Upon
adoption, we increased the allowance and reduced retained earnings by
approximately $2 million. As such, the beginning balance differs from the
December 31, 2019 ending balance. Please refer to Note 1 to the consolidated
financial statements in this Form 10-K for additional information.
(2) The provision for credit losses is primarily related to commercial and financial
loans.
(3) Prior to the adoption of ASU 2016-13, the provision for unfunded commitments
was recorded within other expenses in the consolidated statement of income.
Upon adoption of ASU 2016-13 in the first quarter of 2020, the provision for all
assets within scope is recorded within the provision for credit losses in the
consolidated statement of income.
(4) The charge-offs are related to commercial and financial loans.
State Street Corporation | 83
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As discussed above, we adopted ASU 2016-13
in January 2020. For additional information on this
new standard, refer to Note 1 to the consolidated
financial statements in this Form 10-K. The provision
for credit losses related to loans and financial assets
held at amortized cost,
investment
securities classified as HTM and off-balance sheet
commitments, was $88 million in 2020 based on the
CECL methodology, compared to $10 million in 2019
(which was under the previous incurred loss model).
including
As of December 31, 2020, approximately $97
million of our allowance for credit losses was related
to leveraged loans included in the commercial and
financial segment compared to $61 million as of
December 31, 2019, reflecting changes in reserving
standards and economic outlook, as well as negative
credit migration. As our view on current and future
economic scenarios change, our allowance for credit
losses related to these loans may be impacted
through a change to the provisions for credit losses,
reflecting credit migration within our loan portfolio, as
well as changes in management's economic outlook
as of year-end. The remaining $51 million and $13
million as of December 31, 2020 and 2019,
respectively, was
to off-balance sheet
commitments and other financial assets held at
amortized cost, including investment securities held
to maturity.
related
derived
An allowance for credit losses is recognized on
HTM securities upon acquisition of the security, and
on AFS securities when the fair value and expected
future cash flows of the investment securities are less
than their amortized cost basis. Please refer to Note 3
to the consolidated financial statements in this Form
10-K for additional information. Our assessment of
impairment involves an evaluation of economic and
security-specific factors. Such factors are based on
estimates,
by management, which
contemplate current market conditions and security-
specific performance. To the extent that market
than management's
conditions
or
expectations
bond
performance,
the credit-related component of
impairment, in particular, could increase and would be
recorded in the provision for credit losses. Additional
information with respect to the allowance for credit
losses, net impairment losses and gross unrealized
losses is provided in Note 3 to the consolidated
financial statements in this Form 10-K.
are worse
idiosyncratic
due
to
Cross-Border Outstandings
Cross-border outstandings are amounts payable
to us by non-U.S. counterparties which are
denominated
in U.S. dollars or other non-local
currency, as well as non-U.S. local currency claims
not funded by local currency liabilities. Our cross-
border outstandings consist primarily of deposits with
banks; loans and lease financing, including short-
to FX and
duration advances; investment securities; amounts
related
interest rate contracts; and
securities finance. In addition to credit risk, cross-
border outstandings have the risk that, as a result of
political or economic conditions
in a country,
borrowers may be unable to meet their contractual
repayment obligations of principal and/or interest
when due because of
the unavailability of, or
restrictions on, FX needed by borrowers to repay their
obligations.
independent credit
As market and economic conditions change, the
major
rating agencies may
downgrade U.S. and non-U.S. financial institutions
and sovereign issuers which have been, and may in
the future be, significant counterparties to us, or
whose financial instruments serve as collateral on
which we rely for credit risk mitigation purposes, and
may do so again in the future. As a result, we may be
exposed to increased counterparty risk, leading to
negative ratings volatility.
The cross-border outstandings presented
in
Table 30: Cross-border outstandings, represented
approximately 30% and 28% of our consolidated total
assets as of December 31, 2020 and December 31,
2019, respectively.
TABLE 30: CROSS-BORDER OUTSTANDINGS(1)
Investment
Securities and
Other Assets
Derivatives
and Securities
on Loan
Total Cross-
Border
Outstandings
(In millions)
December 31, 2020
United Kingdom
$
18,880 $
1,797 $
Japan
Germany
Canada
Australia
Luxembourg
France
19,537
18,734
5,997
5,790
5,036
3,586
560
2,163
3,113
2,908
2,148
3,010
December 31, 2019
Germany
$
20,968 $
217 $
United Kingdom
Japan
Luxembourg
Canada
Australia
France
Ireland
Switzerland
December 31, 2018
Germany
Japan
United Kingdom
Australia
Canada
Ireland
France
Luxembourg
13,764
11,121
3,399
2,955
3,100
2,813
1,988
1,724
1,468
555
668
783
597
240
641
589
$
20,157 $
489 $
13,985
12,623
4,217
3,010
2,019
2,495
2,033
1,084
1,176
1,349
1,507
809
294
710
20,677
20,097
20,897
9,110
8,698
7,184
6,596
21,185
15,232
11,676
4,067
3,738
3,697
3,053
2,629
2,313
20,646
15,069
13,799
5,566
4,517
2,828
2,789
2,743
(1) Cross-border outstandings included countries in which we do business, and which
amounted to at least 1% of our consolidated total assets as of the dates indicated.
State Street Corporation | 84
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of December 31, 2020, aggregate cross-
border outstandings in each of Switzerland and
Ireland amounted to between 0.75% and 1% of our
consolidated assets, at approximately $3.13 billion
and $2.93 billion, respectively. As of December 31,
2019, aggregate cross-border outstandings in the
Netherlands amounted to between 0.75% and 1% of
our
approximately
assets,
$1.89 billion. As of December 31, 2018, there were no
countries whose aggregate cross-border outstandings
to between 0.75% and 1% of our
amounted
consolidated assets.
consolidated
at
Risk Management
General
In the normal course of our global business
activities, we are exposed to a variety of risks, some
inherent in the financial services industry, others more
specific
risk
management framework focuses on material risks,
which include the following:
to our business activities. Our
• credit and counterparty risk;
• liquidity
management;
risk,
funding
and
• operational risk;
• information technology risk;
• market
risk associated with our
trading activities;
• market risk associated with our non-
trading activities, which we refer to as asset
liability management, and which
and
consists primarily of interest rate risk;
• strategic risk;
• model risk; and
• reputational, fiduciary and business
conduct risk.
Many of these risks, as well as certain factors
underlying each of these risks that could affect our
businesses
financial
statements, are discussed in detail under "Risk
Factors" in this Form 10-K.
consolidated
and
our
function.
risk management
The scope of our business requires that we
balance these risks with a comprehensive and well-
integrated
The
identification, assessment, monitoring, mitigation and
reporting of risks are essential to our financial
performance and successful management of our
businesses. These risks, if not effectively managed,
can result in losses to us as well as erosion of our
capital and damage to our reputation. Our approach,
including Board and senior management oversight
and a system of policies, procedures, limits, risk
measurement and monitoring and internal controls,
allows for an assessment of risks within a framework
for evaluating opportunities for the prudent use of
capital that appropriately balances risk and return.
Our objective is to optimize our return while
operating at a prudent level of risk. In support of this
objective, we have
risk appetite
framework that aligns our business strategy and
financial objectives with the level of risk that we are
willing to incur.
instituted a
Our risk management is based on the following
major goals:
• A culture of risk awareness that
extends across all of our business activities;
• The identification, classification and
quantification of our material risks;
• The establishment of our
risk
appetite and associated limits and policies,
and our compliance with these limits;
of
• The
risk
establishment
management structure at the “top of the
the control and
house”
coordination of
the
business lines;
risk-taking across
that enables
a
• The implementation of stress testing
practices and a dynamic risk-assessment
capability;
• A direct
risk and
strategic-decision making processes and
incentive compensation practices; and
link between
• The overall flexibility to adapt to the
and market
business
ever-changing
conditions.
Our
risk appetite
framework outlines
the
quantitative limits and qualitative goals that define our
risk appetite, as well as the responsibilities for
measuring and monitoring risk against limits, and for
reporting, escalating, approving and addressing
exceptions. Our
is
established by ERM, a corporate risk oversight group,
in conjunction with the MRAC and the RC of the
Board. The Board formally reviews and approves our
risk appetite statement annually, or more frequently
as required.
risk appetite
framework
The risk appetite framework describes the level
and types of risk that we are willing to accommodate
in executing our business strategy, and also serves
as a guide in setting risk limits across our business
units. In addition to our risk appetite framework, we
use stress testing as another important tool in our risk
management practice. Additional information with
respect to our stress testing process and practices is
provided under
this Management's
Discussion and Analysis.
“Capital”
in
State Street Corporation | 85
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Governance and Structure
We have an approach to risk management that involves all levels of management, from the Board and its
committees, including its E&A Committee, RC, the HRC and TOPS, to each business unit and each employee. We
allocate responsibility for risk oversight so that risk/return decisions are made at an appropriate level, and are
subject to robust and effective review and challenge. Risk management is the responsibility of each employee, and
is implemented through three lines of defense: the business units, which own and manage the risks inherent in their
business, are considered the first line of defense; ERM and other support functions, such as Compliance, Finance
and Vendor Management, provide the second line of defense; and Corporate Audit, which assesses the
effectiveness of the first two lines of defense.
The responsibilities for effective review and challenge reside with senior managers, management oversight
committees, Corporate Audit and, ultimately, the Board and its committees. While we believe that our risk
management program is effective in managing the risks in our businesses, internal and external factors may create
risks that cannot always be identified or anticipated.
Corporate-level risk committees provide focused oversight, and establish corporate standards and policies for
specific risks, including credit, sovereign exposure, market, liquidity, operational, information technology as well as
new business products, regulatory compliance and ethics, vendor risk and model risks. These committees have
been delegated the responsibility to develop recommendations and remediation strategies to address issues that
affect or have the potential to affect us.
We maintain a risk governance committee structure which serves as the formal governance mechanism
through which we seek to undertake the consistent identification, management and mitigation of various risks facing
us in connection with its business activities. This governance structure is enhanced and integrated through multi-
disciplinary involvement, particularly through ERM. The following chart presents this structure.
Management Risk Governance Committee Structure
Executive Management Committees:
Management Risk and Capital Committee
(MRAC)
Business Conduct
Committee
(BCC)
Technology and Operational Risk
Committee
(TORC)
Risk Committees:
Asset-Liability
Committee (ALCO)
Credit Risk and Policy
Committee
(CRPC)
Fiduciary Review
Committee
Operational Risk
Committee
Technology Risk
Committee
Trading and Market
Risk Committee
(TMRC)
Basel Oversight
Committee
(BOC)
New Business and
Product Approval
Committee
Executive Information
Security Committee
Enterprise Continuity
Steering Committee
Recovery and
Resolution Planning
Executive Review
Board
Model Risk Committee
(MRC)
Compliance and Ethics
Committee
Vendor Management
Lifecycle Executive
Review Board
CCAR Steering
Committee
SSGA Risk Committee
Legal Entity Oversight
Committee
Country Risk
Committee
Regulatory Reporting
Oversight Committee
Conduct Standards
Committee
State Street Corporation | 86
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Enterprise Risk Management
The goal of ERM is to ensure that risks are
proactively identified, well-understood and prudently
managed in support of our business strategy. ERM
provides risk oversight, support and coordination to
allow for the consistent identification, measurement
and management of risks across business units
separate from the business units' activities, and is
responsible for the formulation and maintenance of
corporate-wide
risk management policies and
guidelines. In addition, ERM establishes and reviews
limits and,
in collaboration with business unit
management, monitors key risks. Ultimately, ERM
works to validate that risk-taking occurs within the risk
appetite statement approved by the Board and
conforms
limits and
to associated risk policies,
guidelines.
The Chief Risk Officer (CRO) is responsible for
our risk management globally, leads ERM and has a
dual reporting line to our CEO and the Board’s RC.
ERM manages its responsibilities globally through a
three-dimensional organization structure:
•
“Vertical” business unit-aligned risk groups
that
risk
management, measurement and monitoring activities;
business managers with
support
•
“Horizontal” risk groups that monitor the risks
that cross all of our business units (for example,
credit and operational risk); and
• Risk oversight
combines
international activities,
for
which
and
“Verticals”
intersecting
“Horizontals” through a hub and spoke model to
provide
legal entity
perspectives to the global risk framework.
regional and
important
this
top of
Sitting on
three-dimensional
is a centralized group
organization structure
responsible for the aggregation of risk exposures
across
regional
dimensions, for consolidated reporting, for setting the
and
corporate-level
associated limits and policies, and for dynamic risk
assessment across our business.
vertical, horizontal and
framework
appetite
risk
the
Board Committees
The Board has four committees which assist it in
discharging its responsibilities with respect to risk
management:
the
Examining and Audit Committee (E&A Committee),
the Human Resources Committee (HRC) and the
Technology and Operations Committee (TOPS).
the Risk Committee
(RC),
The RC is responsible for oversight related to
risk management
the operation of our global
including policies and procedures
framework,
establishing
risk management governance and
processes and risk control infrastructure for our global
operations. The RC is responsible for reviewing and
discussing with management our assessment and
management of all risks applicable to our operations,
liquidity,
including credit, market,
business,
operational,
compliance and reputation risks, and related policies.
interest
technology,
regulatory,
rate,
In addition, the RC provides oversight of capital
policies, capital planning and balance sheet
resolution planning and monitors
management,
capital adequacy in relation to risk. The RC is also
responsible for discharging the duties and obligations
of the Board under applicable Basel and other
regulatory requirements.
The E&A Committee oversees management's
operation of our comprehensive system of internal
controls covering the integrity of our consolidated
financial statements and reports, compliance with
laws, regulations and corporate policies. The E&A
Committee acts on behalf of the Board in monitoring
and overseeing the performance of Corporate Audit
and in reviewing certain communications with banking
regulators. The E&A Committee has direct
responsibility for the appointment, compensation,
retention, evaluation and oversight of the work of our
firm,
independent
including sole authority for the establishment of pre-
approval policies and procedures
for all audit
engagements and any non-audit engagements.
registered public accounting
for
and
officers
participate
The HRC has direct responsibility
the
oversight of human capital management, all
compensation plans, policies and programs in which
executive
incentive,
retirement, welfare as well as equity plans in which
certain of our other employees participate. In addition,
the HRC oversees the alignment of our incentive
compensation arrangements with our safety and
risk
the
soundness,
management objectives, and
related policies,
arrangements and control processes consistent with
applicable related regulatory rules and guidance.
integration of
including
technology and operational
The TOPS leads and assists in the Board’s
oversight of
risk
management and the role of these risks in executing
our strategy and supporting our global business
requirements. The TOPS reviews strategic initiatives
from a technology and operational risk perspective
and reviews and approves technology-related risk
matters. In addition, TOPS reviews matters related to
corporate
information security and cyber-security
programs, operational and technology resiliency, data
and access management and
risk
management.
third-party
State Street Corporation | 87
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Executive Management Committees
MRAC is the senior management decision-
making body for risk and capital issues, and oversees
our financial risks, our consolidated statement of
condition, and our capital adequacy, liquidity and
recovery and resolution planning. Its responsibilities
include:
• The approval of the policies of our
global risk, capital and liquidity management
frameworks,
risk appetite
including our
framework;
• The monitoring and assessment of
internal
our capital adequacy based on
policies and regulatory requirements;
• The oversight of our firm-wide risk
identification, model risk governance, stress
testing and Recovery and Resolution Plan
programs; and
• The ongoing monitoring and review
of risks undertaken within the businesses,
and our senior management oversight and
approval of risk strategies and tactics.
MRAC is co-chaired by our CRO and Chief
Financial Officer, who regularly present to the RC on
developments
risk environment and
the
performance trends in our key business areas.
in
BCC provides oversight of our business conduct
and culture risks and standards, our commitments to
clients and others with whom we do business, and
our potential reputational risks, on an enterprise-wide
basis. Management considers adherence to high
ethical standards to be critical to the success of our
business and to our reputation. The BCC is co-
chaired by our Chief Compliance Officer and our
General Counsel.
TORC provides oversight of, and assesses the
effectiveness of, corporate-wide
technology and
operational risk management programs, and reviews
to manage and control
areas of
technology and operational risk consistently across
the organization. TORC is co-chaired by the Chief
Operating Officer and the Chief Risk Officer.
Risk Committees
improvement
The
following
risk committees, under
the
oversight of the respective executive management
committees, have
for
focused
oversight of specific areas of risk management:
responsibilities
Management Risk and Capital Committee
is
• ALCO
the senior corporate
oversight and decision-making body
for
balance sheet strategy, Global Treasury
business activities and risk management for
interest rate risk, liquidity risk and non-trading
market risk. ALCO’s roles and responsibilities
are designed to be complementary to, and in
coordination with the MRAC, which approves
the corporate risk appetite and associated
balance sheet strategy;
risk policies and guidelines;
• CRPC has primary responsibility for
the oversight and review of credit and
counterparty risk across business units, as
well as oversight, review and approval of the
credit
the
Committee consists of senior executives
reviews policies and
within ERM, and
to all aspects of our
guidelines related
business which give rise to credit risk; our
business units are also represented on the
CRPC; credit risk policies and guidelines are
reviewed periodically, but at least annually;
for
committee
• TMRC reviews the effectiveness of,
and approves, the market risk framework at
least annually; it is the senior oversight and
risk
decision-making
management within our global markets
businesses; the TMRC is responsible for the
formulation of guidelines, strategies and
workflows with respect to the measurement,
monitoring and control of our trading market
risk, and also approves market risk tolerance
limits, collateral and margin policies and
trading authorities; the TMRC meets regularly
to monitor the management of our trading
market risk activities;
• BOC
provides
oversight
and
governance over Basel related regulatory
requirements, assesses compliance with
respect to Basel regulations and approves all
material methodologies and changes, policies
and reporting;
• The Recovery
and Resolution
Planning Executive Review Board oversees
the development of recovery and resolution
plans as required by banking regulators;
• MRC monitors the overall level of
model risk and provides oversight of the
model governance process pertaining
to
financial models, including the validation of
key models and the ongoing monitoring of
model performance. The MRC may also, as
appropriate, mandate remedial actions and
to
compensating controls
models to address modeling deficiencies as
well as other issues identified;
to be applied
• The CCAR Steering Committee
provides primary supervision of the stress
tests performed
the
Federal Reserve's CCAR process and the
Dodd-Frank Act, and is responsible for the
overall management, review, and approval of
in conformity with
State Street Corporation | 88
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
all material assumptions, methodologies, and
results of each stress scenario;
• The State Street Global Advisors
Risk Committee is the most senior oversight
and decision making committee
for risk
management within State Street Global
Advisors; the committee is responsible for
overseeing the alignment of State Street
Global Advisors' strategy, and risk appetite,
as well as alignment with our corporate-wide
strategies and risk management standards;
and
• The Country Risk Committee
oversees
identification, assessment,
monitoring, reporting and mitigation, where
necessary, of country risks.
the
is
• The Regulatory Reporting Oversight
Committee
for providing
responsible
oversight of regulatory reporting and related
report
and
accountabilities.
governance
processes
Business Conduct Committee
• The Fiduciary Review Committee
reviews and assesses
fiduciary risk
management programs of those units in
which we serve in a fiduciary capacity;
the
• The New Business and Product
Approval Committee provides oversight of the
evaluation of the risk inherent in proposed
new products or services and new business,
and extensions of existing products or
including economic
services, evaluations
justification, material
compliance,
regulatory and
legal considerations, and
capital and liquidity analyses;
risk,
and
• The
Ethics
Compliance
Committee provides review and oversight of
our compliance programs,
including our
culture of compliance and high standards of
ethical behavior;
Entity
Legal
establishes
the governance of our
Oversight
• The
standards with
Committee
legal
to
respect
those
entities, monitors adherence
the ongoing
standards, and oversees
evaluation of our
legal entity structure,
including the formation, maintenance and
dissolution of legal entities; and
to
• The Conduct Standards Committee
provides oversight of our enforcement of
employee conduct standards.
Technology and Operational Risk Committee
• The Operational Risk Committee,
along with the support of regional business or
and
working
entity-specific
groups
risk programs,
committees, is responsible for oversight of
our operational
including
determining that the implementation of those
programs is designed to identify, manage and
control operational risk in an effective and
consistent manner across the firm;
• The Technology Risk Committee is
responsible for the global oversight, review
and monitoring of operational, legal and
regulatory compliance and reputational risk
that may result in a significant change to our
Information Technology risk profile or a
material financial loss or reputational impact
to global technology services. The Committee
serves as a forum to provide regular reporting
to TORC and escalate technology risk and
control issues to TORC, as appropriate; and
for
• The Executive Information Security
the
Committee provides direction
Enterprise Information Security posture and
program, including cyber-security protections,
provides enterprise-wide oversight and
the effectiveness of all
assessment of
Information Security Programs to promote
that controls are measured and managed,
and serves as an escalation point for cyber-
security issues.
• The Enterprise Continuity Steering
Committee considers matters pertaining to
continuity and
including
related
oversight in determining the direction of the
continuity program.
risks,
• The Vendor Management Lifecycle
Executive Review Board oversees the end-
to
to-end vendor management process
support operations
in an efficient and
sustainable manner, to oversee management
of vendor-related
to support
compliance with regulatory standards.
risks, and
Credit Risk Management
Core Policies and Principles
We define credit risk as the risk of financial loss
if a counterparty, borrower or obligor, collectively
referred to as a counterparty, is either unable or
unwilling to repay borrowings or settle a transaction in
accordance with underlying contractual terms. We
assume credit risk in our traditional non-trading
lending activities, such as overdrafts, loans and
contingent commitments, in our investment securities
portfolio, where recourse to a counterparty exists, and
in our direct and indirect trading activities, such as
securities purchased under a resale agreement,
principal securities lending and foreign exchange and
indemnified agency securities
lending. We also
assume credit risk in our day-to-day treasury and
securities and other settlement operations, in the form
State Street Corporation | 89
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
of deposit placements and other cash balances, with
central banks or private sector institutions and fees
receivables.
We distinguish between three major types of
credit risk:
• Default
that a
-
counterparty fails to meet its contractual
payment obligations;
risk
risk
the
• Country risk - the risk that we may
suffer a loss, in any given country, due to
any of the following reasons: deterioration of
economic conditions, political and social
upheaval, nationalization and appropriation
repudiation of
of assets, government
controls and
indebtedness, exchange
disruptive
or
devaluation; and
depreciation
currency
• Settlement risk - the risk that the
settlement or clearance of transactions will
fail, which arises whenever the exchange of
cash, securities and/or other assets is not
simultaneous.
The acceptance of credit risk by us is governed
by corporate policies and guidelines, which include
standardized procedures applied across the entire
organization. These policies and guidelines include
specific requirements related to each counterparty's
risk profile; the markets served; counterparty, industry
and
regulatory
compliance. These policies and procedures also
implement a number of core principles, which include
the following:
concentrations;
country
and
• We measure and consolidate credit
risks to each counterparty, or group of
counterparties, in accordance with a “one-
obligor” principle
risks
across our business units;
that aggregates
• ERM
reviews and approves all
extensions of credit, or material changes to
extensions of credit (such as changes in
term, collateral structure or covenants), in
accordance with assigned credit-approval
authorities;
authorities
• Credit-approval
are
assigned to individuals according to their
qualifications, experience and training, and
these authorities are periodically reviewed.
Our largest exposures require approval by
the Credit Committee, a sub-committee of
the CRPC. With respect to small and low-
risk extensions of credit to certain types of
counterparties, approval authority is granted
to individuals outside of ERM;
• We seek to avoid or limit undue
concentrations of risk. Counterparty (or
groups of counterparties), industry, country
and product-specific concentrations of risk
are subject to frequent review and approval
in accordance with our risk appetite;
• We determine the creditworthiness of
counterparties
risk
assessment, including the use of internal
risk-rating methodologies;
through a detailed
• We review all extensions of credit
and the creditworthiness of counterparties at
least annually. The nature and extent of
these reviews are determined by the size,
nature and term of the extensions of credit
and the creditworthiness of the counterparty;
and
• We subject all corporate policies and
guidelines to annual review as an integral
part of our periodic assessment of our risk
appetite.
Our corporate policies and guidelines require
that the business units which engage in activities that
give rise to credit and counterparty risk comply with
procedures that promote the extension of credit for
legitimate business purposes; are consistent with the
maintenance of proper credit standards; limit credit-
related losses; and are consistent with our goal of
maintaining a strong financial condition.
Structure and Organization
The Credit and Global Markets Risk group within
ERM is responsible for the assessment, approval and
monitoring of credit risk across our business. The
group is managed centrally, has dedicated teams in a
number of
locations worldwide across our
businesses, and is responsible for related policies
and procedures, and for our internal credit-rating
systems and methodologies. In addition, the group, in
conjunction with
the business units, establishes
measurements and limits to control the amount of
credit risk accepted across its various business
activities, both at the portfolio level and for each
individual counterparty or group of counterparties, to
individual industries, and also to counterparties by
product and country of risk. These measurements
and limits are reviewed periodically, but at least
annually.
for
In conjunction with other groups in ERM, the
Credit and Global Markets Risk group is jointly
implementation and
responsible
risk measurement and
oversight of our credit
management
and
including
systems,
assessment systems, quantification systems and the
reporting framework.
the design,
data
Various key committees within our company are
responsible for the oversight of credit risk and
associated credit risk policies, systems and models.
State Street Corporation | 90
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All credit-related activities are governed by our risk
appetite framework and our credit risk guidelines,
which define our general philosophy with respect to
credit risk and the manner in which we control,
manage and monitor such risks.
The previously described CRPC (refer to "Risk
the
Committees") has primary responsibility
oversight, review and approval of the credit risk
guidelines and policies. Credit risk guidelines and
policies are reviewed periodically, but at
least
annually.
for
The Credit Committee, a sub-committee of the
CRPC, has responsibility for assigning credit authority
and approving the largest and higher-risk extensions
of credit to individual counterparties or groups of
counterparties.
CRPC provides periodic updates to MRAC and
the Board's RC.
Credit Ratings
We perform initial and ongoing reviews to
exercise due diligence on the creditworthiness of our
counterparties when conducting any business with
them or approving any credit limits.
risk-rating
This due diligence process generally includes
the assignment of an internal credit rating, which is
determined by the use of internally developed and
validated methodologies, scorecards and a 15-grade
rating scale. This risk-rating process incorporates the
use of
in conjunction with
tools
management judgment; qualitative and quantitative
inputs are captured in a replicable manner and,
following a formal review and approval process, an
internal credit rating based on our rating scale is
assigned. Credit ratings are reviewed and approved
by the Credit and Global Markets Risk group or
designees within ERM. To facilitate comparability
across the portfolio, counterparties within a given
sector are rated using a risk-rating tool developed for
that sector.
Our risk-rating methodologies are approved by
the CRPC, after completion of
internal model
validation processes, and are subject to an annual
review, including re-validation.
We generally rate our counterparties individually,
although accounts defined by us as low-risk are rated
on a pooled basis. We evaluate and rate the credit
risk of our counterparties on an ongoing basis.
Risk Parameter Estimates
Our internal risk-rating system promotes a clear
and consistent approach to the determination of
appropriate credit risk classifications for our credit
counterparties and exposures, tracking the changes
in risk associated with these counterparties and
exposures over time. This capability enhances our
risk
to more accurately calculate both
ability
exposures and capital, enabling better strategic
decision making across the organization.
We use credit risk parameter estimates for the
following purposes:
of
• The
the
assessment
creditworthiness of new counterparties and,
risk appetite
in conjunction with our
statement, the development of appropriate
credit limits for our products and services,
including loans, foreign exchange, securities
repurchase
finance,
agreements;
placements
and
approvals
• The use of an automated process for
limit
low-risk
for
counterparties, as defined in our credit risk
guidelines, based on
the counterparty’s
probability-of-default, or PD, rating class;
certain
of
• The
development
approval
authority matrices based on PD; riskier
counterparties with higher PDs
require
higher levels of approval for a comparable
PD and limit size compared to less risky
counterparties with lower PDs;
• The analysis of risk concentration
trends using historical PD and exposure-at-
default, or EAD, data;
• The standardization of rating integrity
testing by GCR using rating parameters;
review of
• The determination of the level of
short-duration
management
riskier
advances depending on PD;
counterparties with higher
rating class
values generally trigger higher levels of
for comparable
management escalation
short-duration advances compared to less
risky counterparties with lower rating-class
values;
• The monitoring of credit
facility
utilization levels using EAD values and the
identification
where
of
counterparties have exceeded limits;
instances
• The aggregation and comparison of
counterparty exposures with risk appetite
levels
if businesses are
maintaining appropriate risk levels; and
to determine
• The determination of our regulatory
capital requirements for the AIRB provided
in the Basel framework.
Credit Risk Mitigation
We seek to limit our credit exposure and reduce
any potential credit losses through the use of various
types of credit risk mitigation. The Basel III final rule
permits us to reflect the application of credit risk
mitigation when it meets the standards outlined
State Street Corporation | 91
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
therein. Examples of forms of credit risk mitigation
include collateral, netting, guarantees and secured
interest in non-financial assets. Where possible, we
apply the recognition of collateral, guarantees and
secured interest over non-financial assets to mitigate
overall risk within our counterparty credit portfolio.
While credit default swaps are permitted under the
Basel III final rule, we do not actively use credit
default swaps as a risk mitigation tool.
Collateral
In many parts of our business, we regularly
require or agree for collateral to be received from or
provided to clients and counterparties in connection
with contracts that incur credit risk. In our trading
businesses, this collateral is typically in the form of
cash, as well as highly-rated and/or liquid securities
(i.e. government securities and other bonds or equity
securities). Credit risks
in our non-trading and
securities finance businesses are also often secured
by bonds and equity securities and by other types of
assets. Collateral serves to reduce the risk of loss
inherent in an exposure by improving the prospect of
recovery in the event of a counterparty default.
However, rapidly changing market values of the
collateral we hold, unexpected increases in the credit
exposure to a client or counterparty, reductions in the
value or change in the type of securities held by us,
as well as operational errors or errors in the manner
in which we seek to exercise our rights, may reduce
the risk mitigation effects of collateral or result in
other security interests not being effective to reduce
potential credit exposure. While collateral is often an
alternative source of repayment, it does not replace
the requirement within our policies and guidelines for
high-quality underwriting standards. We also may
choose to incur credit exposure without the benefit of
collateral or other risk mitigating credits rights.
that
Our credit risk guidelines require
the
collateral we accept for risk mitigation purposes is of
high quality, can be reliably valued and is supported
by a valid security interest that permits liquidation if or
when required. Generally, when collateral is of lower
quality, more difficult to value or more challenging to
liquidate, higher discounts to market values are
applied for the purposes of measuring credit risk. For
certain less liquid collateral, longer liquidation periods
are assumed when determining the credit exposure.
All types of collateral are assessed regularly by
ERM, as is the basis on which the collateral is valued.
Our assessment of collateral, including the ability to
liquidate collateral in the event of a counterparty
default, and also with regard to market values of
collateral under a variety of hypothetical market
conditions,
integral component of our
assessment of risk and approval of credit limits. We
also seek to identify, limit and monitor instances of
is an
"wrong-way" risk, where a counterparty’s risk of
default is positively correlated with the risk of our
collateral eroding in value.
We maintain policies and procedures requiring
that documentation used to collateralize a transaction
is legal, valid, binding and enforceable in the relevant
jurisdictions. We also conduct legal reviews to assess
whether our documentation meets these standards
on an ongoing basis.
Netting
Netting is a mechanism that allows institutions
and counterparties to net offsetting exposures and
payment obligations against one another through the
use of qualifying master netting agreements. A master
for certain rights and
netting agreement allows
remedies upon a counterparty default, including the
right to net obligations arising under derivatives or
other transactions under such agreement. In such an
event, the netting of obligations would result in a
single net claim owed by, or to, the counterparty. This
is commonly referred to as "close-out netting,” and is
pursued wherever possible. We may also enter into
master agreements that allow for the netting of
amounts payable on a given day and in the same
currency, reducing our settlement risk. This
is
commonly referred to as “payment netting,” and is
widely used in our foreign exchange activities.
As with collateral, we have policies and
procedures in place to apply close-out and payment
netting only to the extent that we have verified legal
validity and enforceability of the master agreement. In
the case of payment netting, operational constraints
may preclude us from reducing settlement risk,
notwithstanding the legal right to require the same
under the master netting agreement. In the event we
to operational constraints,
become unable, due
in accounting
actions by
principles,
related
interpretations) or other factors, to net some or all of
our offsetting exposures and payment obligations
under those agreements, we would be required to
gross up our assets and liabilities on our statement of
condition and our calculation of RWA, accordingly.
This would result in a potentially material change in
our regulatory ratios, including LCR, and present
increased
asset-and-liability
management and operational risks, some of which
could be material.
regulators, changes
regulation
law
liquidity,
credit,
(or
or
Guarantees
A guarantee is a financial instrument that results
in credit support being provided by a third party, (i.e.,
the protection provider) to the underlying obligor (the
beneficiary of the provided protection) on account of
an exposure owing by the obligor. The protection
provider may support the underlying exposure either
in whole or in part. Support of this kind may take
different forms. Typical forms of guarantees provided
State Street Corporation | 92
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
to us include financial guarantees, letters of credit,
bankers’
undertaking
acceptances,
agreement contracts and insurance.
purchase
under
guarantees
We have established a review process
to
evaluate
applicable
requirements of our policies and Basel
III
is
this evaluation
requirements. Governance
covered under policies and procedures that require
regular reviews of documentation, jurisdictions and
credit quality of protection providers.
the
for
Credit Limits
Central to our philosophy for our management of
credit risk is the approval and imposition of credit
limits, against which we monitor the actual and
potential future credit exposure arising from our
business activities with counterparties or groups of
counterparties. Credit limits are a reflection of our risk
appetite, which may be determined by
the
creditworthiness of the counterparty, the nature of the
risk inherent in the business undertaken with the
counterparty, or a combination of relevant credit
factors. Our risk appetite for certain sectors and
certain countries and geographic regions may also
influence the level of risk we are willing to assume to
certain counterparties.
The analysis and approval of credit limits is
in a consistent manner across our
undertaken
businesses, although the nature and extent of the
analysis may vary, based on the type, term and
magnitude of the risk being assumed. Credit limits
and underlying exposures are assessed and
measured on both a gross and net basis where
appropriate, with net exposure determined by
deducting the value of any collateral held. For certain
types of risk being assumed, we will also assess and
measure exposures under a variety of hypothetical
market conditions. Credit limit approvals across our
business are undertaken by the Credit and Global
Markets Risk group, by individuals to whom credit
authority has been delegated, or by the Credit
Committee.
Credit limits are re-evaluated annually, or more
frequently as needed, and are revised periodically on
prevailing and anticipated market conditions, changes
in counterparty or country-specific credit ratings and
outlook, changes in our risk appetite for certain
and
counterparties,
enhancements
the measurement of credit
utilization.
Reporting
countries,
sectors
or
to
Ongoing active monitoring and management of
our credit risk is an integral part of our credit risk
management framework. We maintain management
information systems to identify, measure, monitor and
report credit risk across businesses and legal entities,
enabling ERM and our businesses to have timely
access to accurate information on credit limits and
exposures. Monitoring
the
dimensions of counterparty, industry, country and
product-specific risks to facilitate the identification of
concentrations of risk and emerging trends.
is performed along
Key aspects of this credit risk reporting structure
include governance and oversight groups, policies
that define standards for the reporting of credit risk,
data aggregation and sourcing systems and separate
testing of
functions by
Corporate Audit.
reporting
relevant
risk
developments
The Credit Portfolio Management group
routinely assesses the composition of our overall
credit risk portfolio for alignment with our stated risk
appetite. This assessment includes routine analysis
and reporting of the portfolio, monitoring of market-
based indicators, the assessment of industry trends
and
of
and
concentrated risks. The Credit Portfolio Management
group is also responsible, in conjunction with the
business units, for defining the appetite for credit risk
in the major sectors in which we have a concentration
of business activities. These sector-level risk appetite
statements, which
include counterparty selection
criteria and granular underwriting guidelines, are
reviewed periodically and approved by the CRPC.
reviews
regular
Monitoring
Regular surveillance of credit and counterparty
risks is undertaken by our business units, the Credit
and Global Markets Risk group and designees with
ERM, allowing for frequent and extensive oversight.
This surveillance process includes, but is not limited
to, the following components:
• Annual Reviews. A formal review of
counterparties is conducted at least annually
and includes a thorough review of operating
performance, primary risk factors and our
internal credit risk rating. This annual review
includes a review of current and
also
proposed credit limits, an assessment of our
ongoing risk appetite and verification that
supporting
remains
effective.
legal documentation
riskiest counterparties
frequently,
• Interim Monitoring. Monitoring of our
is
largest and
undertaken more
utilizing
financial information, market indicators and
other
relevant credit and performance
measures. The nature and extent of this
interim monitoring is individually tailored to
industry
counterparties and/or
certain
sectors to identify material changes to the
risk profile of a counterparty (or group of
counterparties) and assign an updated
internal risk rating in a timely manner.
State Street Corporation | 93
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
list"
We maintain an active "watch
for all
counterparties where we have identified a concern
that the actual or potential risk of default has
increased. The watch list status denotes a concern
with some aspect of a counterparty's risk profile that
warrants closer monitoring of
the counterparty's
financial performance and related risk factors. Our
ongoing monitoring processes are designed
to
facilitate the early identification of counterparties
whose
any
counterparty may be placed on the watch list by ERM
at its sole discretion.
creditworthiness
deteriorating;
is
Counterparties that receive an internal risk rating
within a certain range on our rating scale are eligible
for watch list designation. These risk ratings generally
correspond with the non-investment grade or near
non-investment grade ratings established by the
major independent credit-rating agencies, and also
the regulatory classifications of “Special
include
Mention,”
“Loss.”
Counterparties whose internal ratings are outside this
range may also be placed on the watch list.
“Doubtful” and
“Substandard,”
The Credit and Global Markets Risk group
maintains primary responsibility for our watch list
processes, and generates a monthly report of all
watch list counterparties. The watch list is formally
least on a quarterly basis, with
reviewed at
participation
and
from
representatives from the business units and our
corporate finance and legal groups as appropriate.
These meetings include a review of individual watch
list counterparties, together with credit limits and
prevailing exposures, and are focused on actions to
contain, reduce or eliminate the risk of loss to us.
Identified actions are documented and monitored.
senior ERM
staff,
Controls
GCR provides a separate level of surveillance
and oversight over the integrity of our credit risk
management processes, including the internal risk-
rating system. GCR reviews counterparty credit
ratings for all identified sectors on an ongoing basis.
GCR is subject to oversight by the CRPC, and
provides periodic updates to the Board’s RC.
Specific activities of GCR include the following:
• Perform separate and objective
assessments of our credit and counterparty
exposures to determine the nature and
extent of risk undertaken by the business
units;
• Execute periodic credit process and
credit product reviews to assess the quality
of credit analysis, compliance with policies,
guidelines
regulation,
transaction structures and underwriting
standards, and risk-rating integrity;
relevant
and
• Identify and monitor developing
counterparty, market and/or industry sector
trends to limit risk of loss and protect capital;
• Deliver regular and formal reporting
to stakeholders,
including exam results,
identified issues and the status of requisite
actions to remedy identified deficiencies;
• Allocate resources
for specialized
risk assessments (on an as-needed basis);
and
• Liaise with assurance partners and
regulatory personnel on matters relating to
risk rating, reporting and measurement.
Allowance for Credit Losses
We maintain an allowance for credit losses to
support our financial assets held at amortized cost.
We also maintain an allowance
for unfunded
commitments and letters of credit to support our off-
balance credit exposure. The
two components
together represent the allowance for credit losses.
Review and evaluation of the adequacy of the
allowance for credit losses is ongoing throughout the
year, but occurs at least quarterly, and is based,
among other factors, on our evaluation of the level of
risk in the portfolio and the estimated effects of our
forecasts on our counterparties. We utilize multiple
economic scenarios, consisting of a baseline, upside
and downside scenarios, to develop management's
forecast of future expected losses.
the
impact of
The economic forecast utilized throughout 2020
reflects both downward credit migration within our
loan portfolio and revision in management’s economic
outlook reflecting
the COVID-19
pandemic. Allowance estimates remain subject to
continued model and economic uncertainty and
management may use qualitative adjustments. If
future data and forecasts deviate relative to the
forecasts utilized to determine our allowance for
credit losses as of December 31, 2020, or if credit risk
migration is higher or lower than forecasted for
reasons independent of the economic forecast, our
allowance for credit losses will also change.
Additional information about the allowance for
credit losses is provided in Note 4 to the consolidated
financial statements in this Form 10-K.
Liquidity Risk Management
Our liquidity framework contemplates areas of
potential risk based on our activities, size and other
appropriate risk-related factors. In managing liquidity
risk we employ limits, maintain established metrics
and early warning indicators and perform routine
stress testing to identify potential liquidity needs. This
process involves the evaluation of a combination of
internal and external scenarios which assist us in
measuring our liquidity position and in identifying
potential increases in cash needs or decreases in
State Street Corporation | 94
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
available sources of cash, as well as the potential
impairment of our ability to access the global capital
markets.
the
federal
We manage our
funds market and
liquidity on a global,
consolidated basis. We also manage liquidity on a
stand-alone basis at our Parent Company, as well as
at certain branches and subsidiaries of State Street
Bank. State Street Bank generally has access to
markets and funding sources limited to banks, such
as
the Federal
Reserve's discount window. The Parent Company is
managed to a more conservative liquidity profile,
reflecting narrower market access. Additionally, the
Parent Company typically holds, or has direct access
to, primarily through SSIF (a direct subsidiary of the
Parent Company), as discussed in "Supervision and
Regulation" in Business in this Form 10-K, enough
cash to meet its current debt maturities and cash
needs, as well as those projected over the next one-
year period. Absent financial distress at the Parent
Company, the liquid assets available at SSIF continue
to be available to the Parent Company. As of
the value of our Parent
December 31, 2020,
Company's net liquid assets totaled $492 million,
compared with $428 million as of December 31,
2019, which amount does not include available
liquidity through SSIF. As of December 31, 2020, our
Parent Company and State Street Bank had
approximately $1.50 billion of senior notes or
subordinated debentures outstanding that will mature
in the next twelve months.
regulatory
As a SIFI, our
liquidity risk management
activities are subject to heightened and evolving
regulatory requirements, including interpretations of
those
requirements, under specific U.S. and
from
international regulations and also resulting
published and unpublished guidance, supervisory
activities, such as stress tests, resolution planning,
examinations and other
interactions.
Satisfaction of these requirements could, in some
cases, result in changes in the composition of our
investment portfolio, reduced NII or NIM, a reduction
in
level of certain business activities or
modifications to the way in which we deliver our
products and services. If we fail to meet regulatory
requirements to the satisfaction of our regulators, we
could receive negative regulatory stress test results,
incur a resolution plan deficiency or determination of
a non-credible resolution plan or otherwise receive an
adverse regulatory finding. Our efforts to satisfy, or
our failure to satisfy, these regulatory requirements
could materially adversely affect our business,
financial condition or results of operations.
the
Governance
Global Treasury
for our
is
management of liquidity. This includes the day-to-day
responsible
management of our global liquidity position, the
development and monitoring of early warning
indicators, key liquidity risk metrics, the creation and
the evaluation and
tests,
execution of stress
implementation of
the
regulatory
maintenance and execution of our liquidity guidelines
and contingency funding plan (CFP), and routine
management reporting to ALCO, MRAC and the
Board's RC.
requirements,
and management
Global Treasury Risk Management, part of ERM,
provides separate oversight over the identification,
communication
of Global
Treasury’s risks in support of our business strategy.
Global Treasury Risk Management reports to the
Treasury Risk Management’s
CRO. Global
responsibilities relative to liquidity risk management
include the development and review of policies and
guidelines;
to
risk guidelines and
the
adherence
associated reporting.
the monitoring of
to
liquidity
related
limits
Liquidity Framework
Our liquidity framework contemplates areas of
potential risk based on our activities, size and other
appropriate risk-related factors. In managing liquidity
risk we employ limits, maintain established metrics
and early warning indicators, and perform routine
stress testing to identify potential liquidity needs. This
process involves the evaluation of a combination of
internal and external scenarios which assist us in
measuring our liquidity position and in identifying
potential increases in cash needs or decreases in
available sources of cash, as well as the potential
impairment of our ability to access the global capital
markets.
We manage
to several
principles that are equally important to our overall
liquidity risk management framework:
liquidity according
• Structural
liquidity management
liquidity by monitoring and
addresses
directing the composition of our consolidated
statement of condition. Structural liquidity is
measured by metrics such as the percentage
of total wholesale funds to consolidated total
assets, and
the percentage of non-
government investment securities to client
deposits. In addition, on a regular basis and
as described below, our structural liquidity is
evaluated under various stress scenarios.
liquidity
• Tactical
day-to-day
management
funding
addresses
our
largely driven by
is
requirements and
changes in our primary source of funding,
which are client deposits. Fluctuations in
client deposits may be supplemented with
repurchase
borrowings,
short-term
State Street Corporation | 95
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
agreements, FHLB products and certificates
of deposit.
• Stress testing and contingent funding
planning are longer-term strategic liquidity
risk management practices. Regular and ad
hoc liquidity stress testing are performed
under various severe but plausible scenarios
at the consolidated level and at significant
subsidiaries, including State Street Bank.
These tests contemplate severe market and
events specific to us under various time
horizons and severities. Tests contemplate
the impact of material changes in key funding
sources, credit ratings, additional collateral
requirements, contingent uses of funding,
systemic shocks to the financial markets and
operational failures based on market and
assumptions specific to us. The stress tests
evaluate the required level of funding versus
available sources in an adverse environment.
As stress
testing contemplates potential
forward-looking scenarios, results also serve
as a trigger to activate specific liquidity stress
levels and contingent funding actions.
to
are
CFPs
assist
designed
senior
management with decision-making associated with
any contingency funding response to a possible or
actual crisis scenario. The CFPs define roles,
responsibilities and management actions to be taken
in the event of deterioration of our liquidity profile
caused by either an event specific to us or a broader
disruption in the capital markets. Specific actions are
linked to the level of stress indicated by these
measures or by management judgment of market
conditions.
Liquidity Risk Metrics
In managing our liquidity, we employ early
warning
indicators and metrics. Early warning
indicators are intended to detect situations which may
result in a liquidity stress, including changes in our
common stock price and the spread on our long-term
debt. Additional metrics
the
management of our consolidated statement of
condition and monitored as part of our routine liquidity
management include measures of our fungible cash
position, purchased wholesale funds, unencumbered
liquid assets, deposits and the total of investment
securities and loans as a percentage of total client
deposits.
Asset Liquidity
that are critical
to
Central to the management of our liquidity is
asset liquidity, which consists primarily of HQLA.
HQLA is the amount of liquid assets that qualify for
inclusion in the LCR. As a banking organization, we
are subject to a minimum LCR under the LCR rule
approved by U.S. banking regulators. The LCR is
improve
intended to promote the short-term resilience of
internationally active banking organizations, like us, to
improve the banking industry's ability to absorb
shocks arising from market stress over a 30 calendar
day period and
the measurement and
management of liquidity risk. The LCR measures an
institution’s HQLA against its net cash outflows.
HQLA primarily consists of unencumbered cash and
certain high quality liquid securities that qualify for
inclusion under the LCR rule. The LCR was fully
implemented beginning on January 1, 2017. We
report LCR to the Federal Reserve daily. For the
quarters
and
December 31, 2019, daily average LCR for the
Parent Company was 108% and 110%, respectively.
The average HQLA for the Parent Company under
the LCR final rule definition was $143.61 billion and
the
$100.23 billion, post-prescribed haircuts,
quarters
and
ended December
December 31, 2019, respectively. The increase in
average HQLA for the quarter ended December 31,
2020, compared to the quarter ended December 31,
2019, was primarily a result of the increase in MBS
and supranational purchases.
ended December
2020
2020
31,
31,
for
We maintained average cash balances
in
excess of regulatory requirements governing deposits
with the Federal Reserve of approximately $75.68
billion at the Federal Reserve, the ECB and other
non-U.S. central banks
the quarter ended
December 31, 2020, and $41.56 billion for the quarter
ended December 31, 2019. The higher levels of
average cash balances with central banks reflect
higher levels of client deposits.
for
Liquid securities carried in our asset liquidity
include securities pledged without corresponding
advances from the Federal Reserve Bank of Boston
(FRBB), the FHLB, and other non-U.S. central banks.
State Street Bank is a member of the FHLB. This
membership allows for advances of liquidity in varying
terms against high-quality collateral, which helps
facilitate asset-and-liability management. As of
December 31, 2020 and December 31, 2019, we had
no outstanding borrowings from the FHLB.
Access to primary, intra-day and contingent
liquidity provided by these utilities is an important
source of contingent liquidity with utilization subject to
underlying conditions. As of December 31, 2020 and
December 31, 2019, we had no outstanding primary
credit borrowings from the FRBB discount window or
any other central bank facility.
In addition to the securities included in our asset
liquidity, we have significant amounts of other
unencumbered
These
securities are available sources of liquidity, although
not as rapidly deployed as those included in our asset
liquidity.
investment
securities.
State Street Corporation | 96
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The average fair value of total unencumbered
securities was $89.12 billion for the quarter ended
December 31, 2020, compared to $76.94 billion for
the quarter ended December 31, 2019.
Measures of liquidity include LCR and NSFR,
which are described in "Supervision and Regulation"
in Business in this Form 10-K.
Uses of Liquidity
Significant uses of our liquidity could result from
the following: withdrawals of client deposits; draw-
downs by our custody clients of lines of credit;
advances to clients to settle securities transactions;
increases in our investment and loan portfolios; or
other permitted purposes. Such circumstances would
generally arise under stress conditions including
deterioration in credit ratings. A recurring use of our
liquidity involves our deployment of HQLA from our
investment portfolio to post collateral to financial
institutions serving as sources of securities under our
enhanced custody program.
We had unfunded commitments to extend credit
with gross contractual amounts totaling $34.21 billion
and $29.70 billion and standby letters of credit
totaling $3.33 billion and $3.32 billion as of
December 31, 2020 and December 31, 2019,
respectively. These amounts do not reflect the value
of any collateral. As of December 31, 2020,
approximately 73% of our unfunded commitments to
extend credit and 20% of our standby letters of credit
expire within one year. Since many of our
commitments are expected to expire or renew without
being drawn upon, the gross contractual amounts do
not
cash
requirements.
necessarily
represent
future
our
Information about our resolution planning and
the impact actions under our resolution plans could
have on our liquidity is provided in "Supervision and
Regulation" in Business in this Form 10-K.
Funding
Deposits
financial
finance and
cash management,
We provide products and services including
custody, accounting, administration, daily pricing, FX
asset
services,
management, securities
investment
advisory services. As a provider of these products
and services, we generate client deposits, which have
generally provided a stable, low-cost source of funds.
As a global custodian, clients place deposits with our
entities in various currencies. As of December 31,
2020, approximately 65% of our average total deposit
in U.S. dollars,
balances were denominated
approximately 15% in EUR, 10% in GBP and 10% in
all other currencies. As of December 31, 2019,
approximately 60% of our average total deposit
in U.S. dollars,
balances were denominated
approximately 20% in EUR, 10% in GBP and 10% in
all other currencies.
Short-Term Funding
liquidity
Our on-balance sheet liquid assets are also an
liquidity management
integral component of our
strategy. These assets provide
through
maturities of the assets, but more importantly, they
provide us with the ability to raise funds by pledging
the securities as collateral for borrowings or through
outright sales. In addition, our access to the global
to source
capital markets gives us
incremental funding from wholesale investors. As
discussed earlier under “Asset Liquidity,” State Street
Bank's membership in the FHLB allows for advances
of liquidity with varying terms against high-quality
collateral.
the ability
Short-term secured funding also comes in the
form of securities lent or sold under agreements to
repurchase. These transactions are short-term in
nature, generally overnight and are collateralized by
high-quality investment securities. These balances
were $3.41 billion and $1.10 billion as of
December 31, 2020 and December 31, 2019,
respectively.
State Street Bank currently maintains a line of
credit with a financial institution of CAD $1.40 billion,
or approximately $1.10 billion, as of December 31,
2020, to support its Canadian securities processing
operations. The
line of credit has no stated
termination date and is cancelable by either party with
prior notice. As of both December 31, 2020 and
December 31, 2019,
there was no balance
outstanding on this line of credit.
Long-Term Funding
current universal
We have the ability to issue debt and equity
securities under our
shelf
registration statement to meet current commitments
and business needs, including accommodating the
transaction and cash management needs of our
clients. The total amount remaining for issuance
under the registration statement is $7 billion as of
December 31, 2020. In addition, State Street Bank
also has current authorization from the Board to issue
up to $5 billion in unsecured senior debt.
On January 24, 2020, we issued $750 million
aggregate principal amount of 2.400% Senior Notes
due 2030 in a public offering.
On March 26, 2020, we issued $750 million
aggregate principal amount of 2.825% Fixed-to-
Floating Rate Senior Notes due 2023, $500 million
aggregate principal amount of 2.901% Fixed-to-
Floating Rate Senior Notes due 2026 and
$500 million aggregate principal amount of 3.152% of
Fixed-to-Floating Rate Senior Notes due 2031.
State Street Corporation | 97
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Agency Credit Ratings
Our ability to maintain consistent access to liquidity is fostered by the maintenance of high investment grade
ratings as measured by the major independent credit rating agencies. Factors essential to maintaining high credit
ratings include:
• diverse and stable core earnings;
•
•
•
relative market position;
strong risk management;
strong capital ratios;
• diverse liquidity sources, including the global capital markets and client deposits;
•
strong liquidity monitoring procedures; and
• preparedness for current or future regulatory developments.
High ratings limit borrowing costs and enhance our liquidity by:
• providing assurance for unsecured funding and depositors;
•
increasing the potential market for our debt and improving our ability to offer products;
serving markets; and
•
• engaging in transactions in which clients value high credit ratings.
A downgrade or reduction of our credit ratings could have a material adverse effect on our liquidity by
restricting our ability to access the capital markets, which could increase the related cost of funds. In turn, this could
cause the sudden and large-scale withdrawal of unsecured deposits by our clients, which could lead to draw-downs
of unfunded commitments to extend credit or trigger requirements under securities purchase commitments; or
require additional collateral or force terminations of certain trading derivative contracts.
A majority of our derivative contracts have been entered into under bilateral agreements with counterparties
who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We
assess the impact of these arrangements by determining the collateral that would be required assuming a
downgrade by all rating agencies. The additional collateral or termination payments related to our net derivative
liabilities under these arrangements that could have been called by counterparties in the event of a downgrade in
our credit ratings below levels specified in the agreements is provided in Note 10 to the consolidated financial
statements in this Form 10-K. Other funding sources, such as secured financing transactions and other margin
requirements, for which there are no explicit triggers, could also be adversely affected.
TABLE 31: CREDIT RATINGS
State Street:
Senior debt
Subordinated debt
Junior subordinated debt
Preferred stock
Outlook
State Street Bank:
Short-term deposits
Long-term deposits
Senior debt/Long-term issuer
Subordinated debt
Outlook
Standard & Poor’s
As of December 31, 2020
Moody’s Investors Service
A
A-
BBB
BBB
Stable
A-1+
AA-
AA-
A
Stable
A1
A2
A3
Baa1
Stable
P-1
Aa1
Aa3
Aa3
Stable
Fitch
AA-
A
NR
BBB+
Stable
F1+
AA+
AA
A+
Stable
State Street Corporation | 98
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Contractual Cash Obligations and Other Commitments
The long-term contractual cash obligations included within Table 32: Long-Term Contractual Cash Obligations
were recorded in our consolidated statement of condition as of December 31, 2020, except for the interest portions
of long-term debt and finance leases.
TABLE 32: LONG-TERM CONTRACTUAL CASH OBLIGATIONS
December 31, 2020
(In millions)
Long-term debt(1)(2)
Operating leases
Finance lease obligations(2)
Tax liability
Payments Due by Period
Less than 1
year
1-3
years
4-5
years
Over 5
years
Total
$
1,505 $
3,623 $
4,073 $
4,501 $
13,702
186
41
—
314
72
4
205
—
43
275
—
—
980
113
47
Total contractual cash obligations
$
1,732 $
4,013 $
4,321 $
4,776 $
14,842
(1) Long-term debt excludes finance lease obligations (presented as a separate line item) and the effect of interest rate swaps. Interest payments were calculated at
the stated rate with the exception of floating-rate debt, for which payments were calculated using the indexed rate in effect as of December 31, 2020.
(2) Additional information about contractual cash obligations related to long-term debt and operating and finance leases is provided in Notes 9 and 20 to the
consolidated financial statements in this Form 10-K.
Total contractual cash obligations shown in Table 32: Long-Term Contractual Cash Obligations do not include:
• Obligations which will be settled in cash, primarily in less than one year, such as client deposits,
federal funds purchased, securities sold under repurchase agreements and other short-term borrowings.
Additional information about deposits, federal funds purchased, securities sold under repurchase
agreements and other short-term borrowings is provided in Note 8 to the consolidated financial statements
in this Form 10-K.
• Obligations related to derivative instruments because the derivative-related amounts recorded in
our consolidated statement of condition as of December 31, 2020 did not represent the amounts that may
ultimately be paid under the contracts upon settlement. Additional information about our derivative
instruments is provided in Note 10 to the consolidated financial statements in this Form 10-K. We have
obligations under pension and other post-retirement benefit plans, with additional information provided in
Note 19 to the consolidated financial statements in this Form 10-K, which are not included in Table 32:
Long-Term Contractual Cash Obligations.
TABLE 33: OTHER COMMERCIAL COMMITMENTS
(In millions)
Indemnified securities financing
Unfunded credit facilities
Standby letters of credit
Purchase obligations(2)
Total commercial commitments
Duration of Commitment as of December 31, 2020
Less than
1 year
1-3
years
4-5
years
Over 5
years
Total amounts
committed(1)
$
440,875 $
— $
— $
— $
23,122
662
122
7,931
1,529
150
3,021
1,139
15
139
—
—
440,875
34,213
3,330
287
$
464,781 $
9,610 $
4,175 $
139 $
478,705
(1) Total amounts committed reflect participations to independent third parties, if any.
(2) Amounts represent obligations pursuant to legally binding agreements, where we have agreed to purchase products or services with a specific minimum quantity
defined at a fixed, minimum or variable price over a specified period of time.
Additional information about the commitments presented in Table 33: Other commercial commitments, except
for purchase obligations, is provided in Note 12 to the consolidated financial statements in this Form 10-K.
State Street Corporation | 99
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operational Risk Management
Overview
Operational risk is the risk of loss resulting from
inadequate or failed internal processes, people and
systems or from external events. Operational risk
encompasses fiduciary risk and legal risk. Fiduciary
risk is defined as the risk that we fail to properly
exercise our fiduciary duties in our provision of
products or services to clients. Legal risk is the risk of
loss resulting from failure to comply with laws and
contractual obligations.
Operational risk is inherent in the performance
of investment servicing and investment management
activities on behalf of our clients. Whether it be
fiduciary risk, risk associated with execution and
processing or other types of operational risk, a
consistent, transparent and effective operational risk
framework is key to identifying, monitoring and
managing operational risk.
We have established an operational
risk
framework that is based on three major goals:
• Strong, active governance;
• Ownership and accountability; and
• Consistency and transparency.
Governance
Our Board is responsible for the approval and
oversight of our overall operational risk framework. It
through
its TOPS, which reviews our
does so
operational
framework and approves our
risk
operational risk policy annually.
Our operational risk policy establishes our
approach to our management of operational risk
across our business. The policy
the
responsibilities of individuals and committees charged
with oversight of the management of operational risk,
and articulates a broad mandate
that supports
implementation of the operational risk framework.
identifies
ERM and other control groups provide the
the
oversight,
management and measurement of operational risk.
validation and
verification of
on
Executive management actively manages and
oversees our operational risk framework through
membership
risk management
various
committees, including MRAC, the BCC, TORC, the
the Executive
Operational Risk Committee,
the
Information Security Steering Committee,
Enterprise Continuity Steering Committee,
the
Compliance and Ethics Committee,
the Vendor
Management Lifecycle Executive Review Board and
the Fiduciary Review Committee, all of which
ultimately report to the appropriate committee of the
Board.
The Operational Risk Committee, chaired by the
global head of Operational Risk and co-chaired by the
FLOD Head of Business Risk Management, provides
cross-business oversight of operational
risk,
operational risk programs and their implementation to
identify, measure, manage and control operational
risk in an effective and consistent manner and
reviews and approves operational risk guidelines
intended to maintain a consistent implementation of
our corporate operational risk policy and framework.
Ownership and Accountability
We have
implemented our operational risk
framework to support the broad mandate established
framework
by our operational risk policy. This
represents an integrated set of processes and tools
that assists us in the management and measurement
of operational risk,
including our calculation of
required capital and RWA.
of
the Committee
The framework takes a comprehensive view and
integrates the methods and tools used to manage
and measure operational risk. The framework utilizes
of Sponsoring
aspects
Organizations of the Treadway Commission (COSO)
framework and other industry leading practices, and
is designed foremost to address our risk management
needs while complying with regulatory requirements.
The operational risk framework is intended to provide
a number of important benefits, including:
• A
common
understanding
risk management and
of
its
operational
supporting processes;
• The clarification of responsibilities for
the management of operational risk across
our business;
• The alignment of business priorities
with risk management objectives;
• The active management of risk and
early identification of emerging risks;
• The consistent application of policies
risk
the collection of data
and
management and measurement; and
for
• The estimation of our operational risk
capital requirement.
The operational risk
framework employs a
distributed risk management infrastructure executed
by ERM groups aligned with the business units, which
are
the
the
operational risk framework at the business unit level.
implementation of
responsible
for
is
As with other
management
for
operational risk management of
businesses.
responsibility
risks, senior business unit
the day-to-day
their respective
is business unit management's
the
responsible
oversight
provide
to
of
It
State Street Corporation | 100
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
implementation and ongoing execution of
the
operational risk framework within their respective
coordination and
organizations, as well as
communication with ERM.
that
working structure
risk
programs into a continuous process focused on
in a
managing and measuring operational risk
coordinated and consistent manner.
integrates distinct
Consistency and Transparency
Risk Identification and Assessments
A number of corporate control functions are
directly responsible for implementing and assessing
various aspects of our operational risk framework,
with
the overarching goal of consistency and
transparency to meet the evolving needs of the
business:
and
evolution
• The global head of Operational Risk,
a member of
the CRO’s executive
management team, leads ERM’s corporate
ORM group. ORM is responsible for the
consistent
strategy,
implementation of our operational
risk
guidelines, framework and supporting tools
across our business. ORM reviews and
analyzes operational key risk information,
events, metrics and indicators at the business
unit and corporate level for purposes of risk
management, reporting and escalation to the
CRO, senior management and governance
committees;
• ERM’s Centralized Modeling and
Analytics group develops and maintains
operational risk capital estimation models,
and ORM's Capital Analysis group calculates
our required capital for operational risk;
• ERM’s MVG independently validates
the quantitative models used to measure
operational
risk, and ORM performs
validation checks on the output of the model;
the
• CIS establishes
framework,
policies and related programs to measure,
monitor and report on information security
risks, including the effectiveness of cyber-
security program protections. CIS defines
and manages the enterprise-wide information
security program. CIS coordinates with
Information Technology, control functions and
business units to support the confidentiality,
corporate
integrity and availability of
information assets. CIS
identifies and
employs a risk-based methodology consistent
with applicable
regulatory cyber-security
requirements and monitors the compliance of
our systems with
information security
policies; and
• Corporate Audit performs separate
reviews of the application of operational risk
management practices and methodologies
utilized across our business.
Our operational risk framework consists of five
components, each described below, which provide a
risk
The objective of
identification and
assessments is to understand business unit strategy,
risk profile and potential exposures. It is achieved
through a series of risk assessments across our
business using
identification,
assessment and measurement of risk across a
frequency and severity
spectrum of potential
combinations. Three primary
risk assessment
programs, which occur annually, augmented by other
business-specific programs, are the core of this
component:
techniques
the
for
• The risk and control assessment
program seeks
the risks
to understand
associated with day-to-day activities, and the
effectiveness of controls intended to manage
potential exposures arising
these
activities. These risks are typically frequent in
nature but generally not severe in terms of
exposure;
from
• The Material Risk
Identification
process utilizes a bottom-up approach to
identify our most significant risk exposures
across all on- and off-balance sheet risk-
taking activities. The program is specifically
designed to consider risks that could have a
material impact irrespective of their likelihood
or frequency. This can include risks that may
have an impact on longer-term business
objectives, such as significant change
management activities or long-term strategic
initiatives;
• The Scenario Analysis program
focuses on the set of risks with the highest
severity and most relevance from a capital
perspective. These are generally referred to
as “tail risks," and serve as
important
benchmarks for our loss distribution approach
model (see below); they also provide inputs
into stress testing; and
programs
• Business-specific
to
identify, assess and measure risk, including
review and
new business and product
approval, new client screening, and, as
deemed
risk
assessments.
appropriate,
targeted
Capital Analysis
The primary measurement tool used is an
internally developed loss distribution approach (LDA)
model. We use the LDA model to quantify required
operational risk capital, from which we calculate RWA
State Street Corporation | 101
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
related to operational risk. Such required capital and
RWA
totaled $3.53 billion and $44.15 billion,
respectively, as of December 31, 2020, compared to
$3.84 billion and $47.96 billion, respectively, as of
December 31, 2019; refer to the "Capital" section in
"Financial Condition,"
this Management's
Discussion and Analysis.
of
The LDA model incorporates the four required
operational risk elements described below:
•
in
included
Internal loss event data is collected
from across our business in conformity with
our operating loss policy that establishes the
requirements
for collecting and reporting
individual loss events. We categorize the
data into seven Basel-defined event types
and further subdivide the data by business
unit, as deemed appropriate. Each of these
loss events are represented in a UOM which
is used to estimate a specific amount of
capital required for the types of loss events
that fall into each specific category. Some
UOMs are measured at the corporate level
because they are not “business specific,”
such as damage to physical assets, where
the cause of an event is not primarily driven
by the behavior of a single business unit.
losses of $500 or greater are
Internal
the
captured, analyzed and
modeling approach. Loss event data
is
collected using a corporate-wide data
collection tool, which stores the data in a
to
Loss Event Data Repository (LEDR)
support processes
to analysis,
management reporting and the calculation of
required capital. Internal loss event data
severity
provides our
information to our capital calculation process
for historical loss events experienced by us.
Internal loss event data may be incorporated
into our LDA model in a future quarter
following the realization of the losses, with
the timing and categorization dependent on
the processes for model updates and, if
applicable, model revalidation and regulatory
review and related supervisory processes. An
individual loss event can have a significant
effect on the output of our LDA model and our
operational risk RWA under the advanced
approaches depending on the severity of the
loss event, its categorization among the
seven Basel-defined UOMs and the stability
of the distributional approach for a particular
UOM;
frequency and
related
• External loss event data provides
information with respect to loss event severity
from other financial institutions to inform our
capital estimation process of events in similar
units
other
business
banking
at
organizations. This information supplements
the data pool available for use in our LDA
model. Assessments of the sufficiency of
internal data and the relevance of external
data are completed before pooling the two
data sources for use in our LDA model;
• Scenario analysis workshops are
conducted across our business to inform
management of the less frequent but most
severe, or “tail,” risks that the organization
faces. The workshops are attended by senior
business unit managers, other support and
control partners and business-aligned risk
management staff. The workshops are
designed to capture information about the
significant risks and to estimate potential
exposures for individual risks should a loss
event occur. The results of these workshops
are used to make a comparison to our LDA
model
that our
results
calculation of
required capital considers
relevant risk-related information; and
to determine
• Business environment and internal
control factors are gathered as part of our
scenario analysis program to inform the
scenario analysis workshop participants of
internal
loss event data and business-
relevant metrics, such as risk assessment
program results, along with industry loss
event data and case studies where
appropriate. Business environment and
are
internal
those
control
characteristics of a bank’s
internal and
external operating environment that bear an
exposure to operational risk. The use of this
information
our
calculation of required capital by providing
additional
to workshop
participants when reviewing specific UOM
risks.
relevant data
influences
indirectly
factors
Monitoring, Reporting and Analytics
It
risk exposure.
The objective of risk monitoring is to proactively
monitor the changing business environment and
corresponding operational
is
achieved
through a series of quantitative and
qualitative monitoring tools that are designed to allow
the business
us
environment, internal control factors, risk metrics, risk
assessments, exposures and operating effectiveness,
as well as details of loss events and progress on risk
to mitigate potential risk
initiatives
exposures.
to understand changes
implemented
in
Operational risk reporting is intended to provide
transparency,
to
manage risk, provide oversight and escalate issues in
thereby enabling management
State Street Corporation | 102
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
a timely manner. It is designed to allow the business
units, executive management, and the Board's control
functions and committees to gain insight into activities
that may result in risks and potential exposures.
Reports are intended to identify business activities
that are experiencing processing issues, whether or
not they result in actual loss events. Reporting
includes results of monitoring activities, internal and
external examinations, regulatory reviews and control
assessments. These elements combine in a manner
designed to provide a view of potential and emerging
risks
its
facing us and
progress on managing risks.
that details
information
Effectiveness and Testing
are
that
internal
controls
The objective of effectiveness and testing is to
verify
designed
appropriately, are consistent with corporate and
regulatory standards, and are operating effectively. It
is achieved through a series of assessments by both
internal and external parties, including Corporate
Audit, independent registered public accounting firms,
business self-assessments and other control function
reviews, such as a Sarbanes-Oxley Act of 2002
(SOX) testing program.
Consistent with our standard model validation
process, the operational risk LDA model is subject to
a detailed review, overseen by the MRC. In addition,
the model is subject to a rigorous internal governance
process. All changes
input
to
parameters, and the deployment of model updates,
are reviewed and approved by the Operational Risk
Committee, which has oversight responsibility for the
model, with technical input from the MRC.
the model or
Documentation and Guidelines
Documentation and guidelines allow
for
consistency and
the various
processes that support the operational risk framework
across our business.
repeatability of
Operational
risk guidelines document our
in a
the key elements
practices and describe
business unit's operational
risk management
program. The purpose of the guidelines is to set forth
and define key operational risk terms, provide further
detail on our operational risk programs, and detail the
business units' responsibilities to identify, assess,
measure, monitor and report operational risk. The
guideline supports our operational risk policy.
to
Data standards have been established
maintain consistent data repositories and systems
that are controlled, accurate and available on a timely
basis to support operational risk management.
Information Technology Risk Management
Overview and Principles
We define technology risk as the risk associated
with the use, ownership, operation, involvement,
influence and adoption of information technology.
Technology risk includes risks potentially triggered by
regulatory
technology
obligations,
privacy
incidents, business disruption, technology internal
control and process gaps, technology operational
events and adoption of new business technologies.
non-compliance
information
security
with
and
The principal
risks within our
technology
technology risk policy and risk appetite framework
include:
• Third party and vendor management
risk;
• Business disruption and technology
resiliency risk;
• Technology change management
risk;
• Cyber and information security risk;
• Technology asset and configuration
risk; and
• Technology obsolescence risk.
Governance
Our Board is responsible for the approval and
oversight of our overall technology risk framework
and program. It does so through its TOPS, which
reviews and approves our technology risk policy and
appetite framework annually.
Our
technology risk policy establishes our
approach to our management of technology risk
across our business. The policy
the
responsibilities of individuals and committees charged
with oversight of the management of technology risk
and articulates a broad mandate
that supports
implementation of the technology risk framework.
identifies
functions
Risk control
in
for adopting and executing
the business are
responsible
the
information technology risk framework and reporting
requirements. They do this, in part, by developing and
maintaining an inventory of critical applications and
supporting
identifying,
infrastructure, as well as
assessing and measuring technology risk utilizing the
technology risk framework. They are also responsible
for monitoring and evaluating risk on a continual basis
using key risk indicators, risk reporting and adopting
appropriate risk responses to risk issues.
is
The Chief Technology Risk Officer, a member of
the CRO’s executive management team, leads the
Enterprise Technology Risk Management (ETRM)
function. ETRM
function
responsible for the technology risk strategy and
appetite, and technology risk framework development
and execution. ETRM also performs overall
technology risk monitoring and reporting to the Board,
and provides a separate view of the technology risk
posture to executive leadership.
the separate
risk
State Street Corporation | 103
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We manage technology risks by:
• Coordinating various risk assessment
and risk management activities, including
ERM operational risk programs;
• Establishing,
through TORC and
TOPS of the Board, the enterprise level
technology risk and cyber risk appetite and
limits;
• Producing enterprise
risk
reporting, aggregation, dashboards, profiles
and risk appetite statements;
level
• Validating
appropriateness
of
reporting of information technology risks and
risk acceptance to senior management risk
committees and the Board;
• Promoting a strong technology risk
culture through communication;
• Serving as an escalation and
challenge point for technology risk policy
guidance, expectations and clarifications;
key
• Assessing effectiveness of
enterprise information technology risk and
internal control remediation programs; and
• Providing risk oversight, challenge
and monitoring for the Global Continuity and
Third Party Vendor Management Program,
the collection of risk appetite,
including
metrics and KRIs, and reviewing
issue
management processes and consistent
program adoption.
Cyber-Security Risk Management
Cyber-security risk is managed as part of our
overall information technology risk framework as
outlined above under the direction of our Chief
Information Security Officer (CISO).
We recognize the significance of cyber-attacks
and have taken steps to mitigate the risks associated
with them. We have made significant investments in
building a mature cyber-security program to leverage
people, technology and processes to protect our
systems and the data in our care. We have also
implemented a program to help us better measure
and manage the cyber-security risk we face when we
engage with third parties for services.
All employees are required to adhere to our
cyber-security policy and standards. Our centralized
information security group provides education and
training. This training includes a required annual
online training class for all employees, multiple
simulated phishing attacks and regular information
security awareness materials.
We employ Information Security Officers to help
the business better understand and manage their
information security risks, as well as to work with the
centralized
awareness and compliance throughout the business.
Information Security
to drive
team
We use independent third parties to perform
ethical hacks of key systems to help us better
understand the effectiveness of our controls and to
better implement more effective controls, and we
engage with third parties to conduct reviews of our
overall program to help us better align our cyber-
security program with what is required of a large
financial services organization.
We have an incident response program in place
that
to enable a well-coordinated
is designed
response to mitigate the impact of cyber-attacks,
recover from the attack and to drive the appropriate
level of communication to internal and external
stakeholders.
The TORC assesses and manages
the
effectiveness of our cyber-security program, which is
overseen by the TOPS of our Board. The TOPS
receives regular cyber-security updates throughout
the year and
for reviewing and
approving the program on an annual basis.
is responsible
Market Risk Management
Market risk is defined by U.S. banking regulators
as the risk of loss that could result from broad market
movements, such as changes in the general level of
interest rates, credit spreads, foreign exchange rates
or commodity prices. We are exposed to market risk
in both our trading and certain of our non-trading, or
asset-and-liability management, activities.
Information about the market risk associated
with our trading activities is provided below under
“Trading Activities.” Information about the market risk
associated with our non-trading activities, which
consists primarily of interest rate risk, is provided
below
“Asset-and-Liability Management
Activities.”
under
Trading Activities
In the conduct of our trading activities, we
assume market risk, the level of which is a function of
our overall risk appetite, business objectives and
liquidity needs, our clients' requirements and market
volatility and our execution against those factors.
We engage in trading activities primarily to
support our clients' needs and to contribute to our
overall corporate earnings and liquidity. In connection
with certain of these trading activities, we enter into a
variety of derivative financial instruments to support
our clients' needs and to manage our interest rate
and currency risk. These activities are generally
trading
intended
services revenue and to manage potential earnings
volatility. In addition, we provide services related to
derivatives in our role as both a manager and a
servicer of financial assets.
foreign exchange
to generate
State Street Corporation | 104
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our clients use derivatives to manage the
financial risks associated with their investment goals
and business activities. With the growth of cross-
border investing, our clients often enter into foreign
exchange forward contracts to convert currency for
international investments and to manage the currency
risk in their international investment portfolios. As an
active participant in the foreign exchange markets, we
provide
forward and option
contracts in support of these client needs, and also
act as a dealer in the currency markets.
foreign exchange
As part of our trading activities, we assume
positions in the foreign exchange and interest rate
markets by buying and selling cash instruments and
entering into derivative instruments, including foreign
exchange forward contracts, foreign exchange and
interest rate options and interest rate swaps, interest
rate forward contracts and interest rate futures. As of
December 31, 2020, the notional amount of these
derivative contracts was $2.66 trillion, of which $2.65
trillion was composed of foreign exchange forward,
swap and spot contracts. We seek to match positions
the objective of mitigating related
closely with
currency and interest rate risk. All foreign exchange
contracts are valued daily at current market rates.
Governance
Our assumption of market risk in our trading
activities is an integral part of our corporate risk
appetite. Our Board reviews and oversees our
management of market risk, including the approval of
key market risk policies and the receipt and review of
regular market risk reporting, as well as periodic
updates on selected market risk topics.
The previously described TMRC (refer to "Risk
risk-taking
Committees") oversees all market
activities across our business associated with trading.
The TMRC, which reports to MRAC, is composed of
members of ERM, our global markets business and
our Global Treasury group, as well as our senior
executives who manage our trading businesses and
other members of management who possess
specialized knowledge and expertise. The TMRC
meets regularly to monitor the management of our
trading market risk activities.
Our business units identify, actively manage and
are responsible for the market risks inherent in their
businesses. A dedicated market risk management
group within ERM, and other groups within ERM,
work with those business units to assist them in the
identification, assessment, monitoring, management
and control of market risk, and assist business unit
managers with their market risk management and
measurement activities. ERM provides an additional
line of oversight, support and coordination designed
to promote the consistent identification, measurement
and management of market risk across business
units, separate from those business units' discrete
activities.
The ERM market risk management group is
responsible for the management of corporate-wide
market risk, the monitoring of key market risks and
the development and maintenance of market risk
management policies, guidelines and standards
aligned with our corporate risk appetite. This group
also establishes and approves market risk tolerance
limits and trading authorities based on, but not limited
to, measures of notional amounts, sensitivity, VaR
and stress. Such limits and authorities are specified in
our trading and market risk guidelines which govern
our management of trading market risk.
Corporate Audit separately assesses the design
and operating effectiveness of
the market risk
controls within our business units and ERM. Other
related responsibilities of Corporate Audit include the
periodic review of ERM and business unit compliance
with market risk policies, guidelines and corporate
standards,
regulatory
as
requirements. We are subject to regular monitoring,
reviews and supervisory exams of our market risk
function by the Federal Reserve. In addition, we are
regulated by, among others, the SEC, the Financial
Industry Regulatory Authority and
the U.S.
Commodities Futures Trading Commission.
as well
relevant
Risk Appetite
Our corporate market risk appetite is specified in
policy statements
the governance,
that outline
responsibilities and requirements surrounding the
identification, measurement, analysis, management
and communication of market risk arising from our
trading activities. These policy statements also set
forth the market risk control framework to monitor,
support, manage and control this portion of our risk
appetite. All groups involved in the management and
control of market risk associated with trading activities
are required to comply with the qualitative and
quantitative elements of these policy statements. Our
trading market risk control framework is composed of
the following:
• A trading market risk management
process led by ERM, separate from the
business units' discrete activities;
• Defined
and
authorities for the primary groups involved in
trading market risk management;
responsibilities
• A trading market risk measurement
methodology that captures correlation effects
and allows aggregation of market risk across
risk types, markets and business lines;
• Daily monitoring,
and
reporting of market risk exposures associated
analysis
State Street Corporation | 105
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
with trading activities against market risk
limits;
• A defined
structure and
escalation process in the event of a market
risk limit excess;
limit
• Use of VaR models to measure the
one-day market risk exposure of trading
positions;
• Use of VaR as a ten-day-based
regulatory capital measure of the market risk
exposure of trading positions;
• Use of non-VaR-based limits and
other controls;
• Use of stressed-VaR models, stress-
testing analysis and scenario analysis to
support the trading market risk measurement
and management process by assessing how
portfolios and global business lines perform
under extreme market conditions;
• Use of back-testing as a diagnostic
tool to assess the accuracy of VaR models
and other risk management techniques; and
• A new product approval process that
requires market risk teams to assess trading-
related market risks and apply risk tolerance
limits to proposed new products and business
activities.
We use our CAP to assess our overall capital
and liquidity in relation to our risk profile and provide
a comprehensive strategy for maintaining appropriate
capital and liquidity levels. With respect to market risk
associated with
risk
management and our calculations of regulatory
capital are based primarily on our internal VaR
models and stress testing analysis. As discussed in
detail under “Value-at-Risk” below, VaR is measured
daily by ERM.
activities,
trading
our
The TMRC oversees our market risk exposure in
relation to limits established within our risk appetite
framework. These limits define threshold levels for
VaR- and stressed VaR-based measures and are
applicable to all trading positions subject to regulatory
capital requirements. These limits are designed to
prevent any undue concentration of market risk
exposure, in light of the primarily non-proprietary
nature of our trading activities. The risk appetite
framework and associated limits are reviewed and
approved by the Board's RC.
Covered Positions
Our trading positions are subject to regulatory
market risk capital requirements if they meet the
regulatory definition of a “covered position.” A covered
position
is generally defined by U.S. banking
regulators as an on- or off-balance sheet position
associated with the organization's trading activities
that is free of any restrictions on its tradability, but
does not include intangible assets, certain credit
derivatives recognized as guarantees and certain
equity positions not publicly traded. All FX and
commodity positions are
covered
positions, regardless of the accounting treatment they
receive. The identification of covered positions for
inclusion in our market risk capital framework is
governed by our trading and market risk guidelines,
which outlines the standards we use to determine
whether a trading position is a covered position.
considered
Our covered positions consist primarily of the
trading portfolios held by our global markets
business. They also arise from certain positions held
by our Global Treasury group. These trading positions
include products such as foreign exchange spot,
foreign exchange forwards, non-deliverable forwards,
foreign exchange options, foreign exchange funding
swaps, currency futures, financial futures and interest
rate futures. New activities are analyzed to determine
if the positions arising from such new activities meet
the definition of a covered position and conform to our
trading and market risk guidelines. This documented
analysis, including any decisions with respect to
market risk treatments, must receive approval from
the TMRC.
factors
to measure
We use spot rates, forward points, yield curves
third-party
imported
from
and discount
sources
the value of our covered
positions, and we use such values to mark our
covered positions to market on a daily basis. These
values are subject to separate validation by us in
order to evaluate reasonableness and consistency
with market experience. The mark-to-market gain or
loss on spot transactions is calculated by applying the
spot rate to the foreign currency principal and
comparing the resultant base currency amount to the
original transaction principal. The mark-to-market
gain or loss on a forward foreign exchange contract
or forward cash flow contract is determined as the
difference between the life-to-date (historical) value of
the cash flow and the value of the cash flow at the
inception of the transaction. The mark-to-market gain
or loss on interest rate swaps is determined by
discounting the future cash flows from each leg of the
swap transaction.
State Street Corporation | 106
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Value-at-Risk and Stressed VaR
We use a variety of risk measurement tools and
methodologies, including VaR, which is an estimate of
potential loss for a given period within a stated
risk
statistical confidence
measurement methodology
trading-
related VaR daily. We have adopted standards for
measuring trading-related VaR, and we maintain
regulatory capital for market risk associated with our
trading activities
in conformity with currently
applicable bank regulatory market risk requirements.
interval. We use a
to measure
We utilize an internal VaR model to calculate our
regulatory market risk capital requirements. We use a
historical simulation model to calculate daily VaR- and
for our covered
stressed VaR-based measures
positions in conformity with regulatory requirements.
Our VaR model seeks to capture identified material
risk factors associated with our covered positions,
including risks arising from market movements such
as changes in foreign exchange rates, interest rates
and option-implied volatilities.
We have adopted standards and guidelines to
value our covered positions which govern our VaR-
and stressed VaR-based measures. Our regulatory
VaR-based measure is calculated based on historical
volatilities of market risk factors during a two-year
observation period calibrated to a one-tail, 99%
confidence interval and a ten-business-day holding
period. We also use the same platform to calculate a
one-tail, 99% confidence interval, one-business-day
VaR for internal risk management purposes. A 99%
one-tail confidence interval implies that daily trading
losses are not expected to exceed the estimated VaR
more than 1% of the time, or less than three business
days out of a year.
Our market risk models, including our VaR
model, are subject to change in connection with the
governance, validation and back-testing processes
described below. These models can change as a
result of changes in our business activities, our
historical experiences, market forces and events,
regulations and regulatory interpretations and other
factors.
to
continuing regulatory review and approval. Changes
in our models may result
in our
risk exposures,
measurements of our market
including VaR, and related measures,
including
regulatory capital. These changes could result in
material changes in those risk measurements and
related measures as calculated and compared from
period to period.
the models are subject
in changes
In addition,
Value-at-Risk Measures
VaR measures are based on the most recent
two years of historical price movements
for
instruments and related risk factors to which we have
exposure. The instruments in question are limited to
foreign exchange spot, forward and options contracts
and interest rate contracts, including futures and
interest rate swaps. Historically, these instruments
have exhibited a higher degree of liquidity relative to
other available capital markets instruments. As a
result, the VaR measures shown reflect our ability to
rapidly adjust exposures in highly dynamic markets.
For this reason, risk inventory, in the form of net open
positions, across all currencies is typically limited. In
addition, long and short positions in major, as well as
minor, currencies provide risk offsets that limit our
potential downside exposure.
interest rates and
Our VaR methodology uses a historical
simulation approach based on market-observed
changes in foreign exchange rates, U.S. and non-
U.S.
implied volatilities, and
incorporates
the resulting diversification benefits
provided from the mix of our trading positions. Our
VaR model incorporates approximately 5,000 risk
factors and includes correlations among currency,
interest rates and other market rates.
All VaR measures are subject to limitations and
must be interpreted accordingly. Some, but not all, of
the limitations of our VaR methodology include the
following:
increases
temporary
• Compared to a shorter observation
period, a two-year observation period is
slower to reflect increases in market volatility
(although
in market
volatility will affect the calculation of VaR for a
longer period); consequently, in periods of
sudden increases in volatility or increasing
volatility, in each case relative to the prior
two-year period, the calculation of VaR may
understate current risk;
in
longer
• Compared to a longer observation
period, a two-year observation period may
not reflect as many past periods of volatility in
the markets, because such past volatility is
the observation period;
no
consequently, historical market scenarios of
high volatility, even if similar to current or
likely future market circumstances, may fall
two-year observation period,
outside
resulting in a potential understatement of
current risk;
• The
is
calibrated to a specified level of confidence
and does not indicate the potential magnitude
of losses beyond this confidence level;
VaR-based measure
the
•
In
cases,
certain
VaR-based
measures approximate the impact of changes
in risk factors on the values of positions and
portfolios; this may happen because the
number of inputs included in the VaR model
is necessarily limited; for example, yield
State Street Corporation | 107
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
curve risk factors do not exist for all future
dates;
• The use of historical market
information may not be predictive of future
events, particularly those that are extreme in
nature; this “backward-looking” limitation can
cause VaR to understate or overstate risk;
• The effect of extreme and rare
market movements is difficult to estimate; this
may result from non-linear risk sensitivities as
well as the potential for actual volatility and
correlation levels to differ from assumptions
implicit in the VaR calculations; and
•
Intra-day risk is not captured.
as part of the Federal Reserve's CCAR process.
Stress testing is conducted, analyzed and reported at
the corporate, trading desk, division and risk-factor
level (for example, exchange risk, interest rate risk
and volatility risk).
Stress testing results and limits are actively
monitored on a daily basis by ERM and reported to
the TMRC. Limit breaches are addressed by ERM
risk managers in conjunction with the business units,
escalated as appropriate, and reviewed by the TMRC
if material. In addition, we have established several
action triggers that prompt immediate review by
management and
implementation of a
remediation plan.
the
to
identify
We calculate a stressed VaR-based measure
using the same model we use to calculate VaR, but
with model inputs calibrated to historical data from a
range of continuous twelve-month periods that reflect
significant financial stress. The stressed VaR model is
designed
the second-worst outcome
occurring in the worst continuous one-year rolling
period since July 2007. This stressed VaR meets the
regulatory requirement as the rolling ten-day period
with an outcome that is worse than 99% of other
outcomes during that twelve-month period of financial
stress. For each portfolio,
is
determined algorithmically by seeking the one-year
time horizon that produces the largest ten-business-
day VaR from within the available historical data. This
historical data set includes the financial crisis of 2008,
the highly volatile period surrounding the Eurozone
sovereign debt crisis and the Standard & Poor's
downgrade of U.S. Treasury debt in August 2011. As
the historical data set used to determine the stress
period expands over time, future market stress events
will be incorporated.
the stress period
Stress Testing
financial
We have a corporate-wide stress
testing
program in place that incorporates an array of
techniques to measure the potential loss we could
suffer in a hypothetical scenario of adverse economic
and
also monitor
conditions. We
concentrations of risk such as concentration by
branch, risk component, and currency pairs. We
conduct stress testing on a daily basis based on
selected historical stress events that are relevant to
our positions in order to estimate the potential impact
to our current portfolio should similar market
conditions recur, and we also perform stress testing
involve spot
We perform scenario analysis daily based on
selected historical stress events that are relevant to
our positions in order to estimate the potential impact
to our current portfolio should similar market
conditions recur. Relevant scenarios are chosen from
an inventory of historical financial stresses and
applied to our current portfolio. These historical event
scenarios
foreign exchange, credit,
equity, unforeseen geo-political events and natural
disasters, and government and central bank
intervention scenarios. Examples of
the specific
historical scenarios we incorporate in our stress
testing program may include the Asian financial crisis
of 1997, the September 11, 2001 terrorist attacks in
the U.S. and the 2008 financial crisis. We continue to
update our inventory of historical stress scenarios as
new stress conditions emerge
financial
markets.
the
in
As each of the historical stress events is
associated with a different time horizon, we normalize
results by scaling down the longer horizon events to a
ten-day horizon and keeping the shorter horizon
events (i.e., events that are shorter than ten days) at
their original terms. We also conduct sensitivity
analysis daily to calculate the impact of a large
predefined shock in a specific risk factor or a group of
risk factors on our current portfolio. These predefined
shocks include parallel and non-parallel yield curve
shifts and foreign exchange spot and volatility surface
shifts. In a parallel shift scenario, we apply a constant
factor shift across all yield curve tenors. In a non-
parallel shift scenario, we apply different shock levels
to different tenors of a yield curve, rather than shifting
the entire curve by a constant amount. Non-parallel
shifts include steepening, flattening and butterflies.
State Street Corporation | 108
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Validation and Back-Testing
We perform frequent back-testing to assess the accuracy of our VaR-based model in estimating loss at the
stated confidence level. This back-testing involves the comparison of estimated VaR model outputs to daily, actual
profit-and-loss (P&L) outcomes observed from daily market movements. We back-test our VaR model using “clean”
P&L, which excludes non-trading revenue such as fees, commissions and NII, as well as estimated revenue from
intra-day trading.
Our VaR definition of trading losses excludes items that are not specific to the price movement of the trading
assets and liabilities themselves, such as fees, commissions, changes to reserves and gains or losses from intra-
day activity.
We experienced three back-testing exceptions in 2020 and two back-testing exceptions in 2019. At a 99%
confidence interval, the statistical expectation for a VaR model is to witness one exception every hundred trading
days (or two to three exceptions per year). The 2020 back-testing exceptions were all noted during the March 2020
market turmoil where some of the largest risk factor shifts since the 2007/2008 financial crisis were observed.
Our model validation process also evaluates the integrity of our VaR models through the use of regular
outcome analysis. This outcome analysis includes back-testing, which compares the VaR model's predictions to
actual outcomes using out-of-sample information. Consistent with regulatory guidance, the back-testing compared
“clean” P&L, defined above, with the one-day VaR produced by the model. The back-testing was performed for a
time period not used for model development. The number of occurrences where “clean” trading-book P&L exceeded
the one-day VaR was within our expected VaR tolerance level.
Market Risk Reporting
Our ERM market risk management group is responsible for market risk monitoring and reporting. We use a
variety of systems and controlled market feeds from third-party services to compile data for several daily, weekly
and monthly management reports.
The following tables present VaR and stressed VaR associated with our trading activities for covered positions
held during the years ended December 31, 2020 and 2019, respectively, as measured by our VaR methodology.
Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for
each trading activity. This effect arises because the risks present in our trading activities are not perfectly correlated.
TABLE 34: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
Year Ended December 31, 2020
Year Ended December 31, 2019
(In thousands)
Year Ended
Average
Maximum
Minimum
Year Ended
Average
Maximum
Minimum
Global Markets
$
9,321 $
12,430 $
33,991 $
5,220 $
9,954 $
10,372 $
26,419 $
4,201
Global Treasury
Diversification
4,015
2,899
8,874
(4,068)
(2,253)
(9,062)
112
(121)
987
(1,082)
726
(757)
3,988
(6,046)
123
(73)
Total VaR
$
9,268 $
13,076 $
33,803 $
5,211 $
9,859 $
10,341 $
24,361 $
4,251
TABLE 35: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
Year Ended December 31, 2020
Year Ended December 31, 2019
(In thousands)
Year Ended
Average
Maximum
Minimum
Year Ended
Average
Maximum
Minimum
Global Markets
$
35,999 $
35,031 $
84,755 $
15,399 $
48,089 $
32,339 $
55,751 $
15,052
Global Treasury
Diversification
8,555
7,895
23,533
(1,106)
(6,330)
(23,570)
587
1,620
5,898
4,671
10,840
(8,289)
(4,857)
(8,426)
842
(599)
Total Stressed VaR
$
43,448 $
36,596 $
84,718 $
17,606 $
45,698 $
32,153 $
58,165 $
15,295
The average of our stressed VaR-based measure was approximately $37 million for the year ended
December 31, 2020, compared to an average of approximately $32 million for the year ended December 31, 2019.
The stressed VaR-based measure as of December 31, 2020 was relatively unchanged compared to
December 31, 2019. Our average stressed VaR-based measure increased as of December 31, 2020 compared to
December 31, 2019, primarily due to larger FX and interest rate positions.
The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of
market volatility and our appetite for taking market risk in our trading activities. Overall levels of volatility have been
low both on an absolute basis and relative to the historical information observed at the beginning of the period used
for the calculations. Both the ten-day VaR-based measures and the stressed VaR-based measures are based on
State Street Corporation | 109
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day
over the past one-year period.
We may in the future modify and adjust our models and methodologies used to calculate VaR and stressed
VaR, subject to regulatory review and approval, and these modifications and adjustments may result in changes in
our VaR-based and stressed VaR-based measures.
The following tables present the VaR and stressed-VaR associated with our trading activities attributable to
foreign exchange risk, interest rate risk and volatility risk as of December 31, 2020 and 2019, respectively. The
totals of the VaR-based and stressed VaR-based measures for the three attributes in total exceeded the related total
VaR and total stressed VaR presented in the foregoing tables as of each period-end, primarily due to the benefits of
diversification across risk types. Diversification effect in the tables below represents the difference between total
VaR and the sum of the VaRs for each trading activity. This effect arises because the risks present in our trading
activities are not perfectly correlated.
TABLE 36: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
(In thousands)
By component:
Global Markets
Global Treasury
Diversification
Total VaR
Foreign
Exchange Risk
As of December 31, 2020(2)
Interest Rate
Risk
Volatility Risk
As of December 31, 2019
Foreign
Exchange Risk
Interest Rate
Risk
Volatility Risk
$
$
2,977 $
8,880 $
179 $
5,447 $
6,266 $
33
(42)
4,257
(2,246)
—
—
24
(23)
966
(995)
2,968 $
10,891 $
179 $
5,448 $
6,237 $
126
—
—
126
TABLE 37: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
(In thousands)
By component:
Global Markets
Global Treasury
Diversification
Total Stressed VaR
Foreign
Exchange Risk
As of December 31, 2020(2)
Interest Rate
Risk
Volatility Risk
As of December 31, 2019
Foreign
Exchange Risk
Interest Rate
Risk
Volatility Risk
$
$
5,102 $
39,615 $
265 $
8,427 $
61,792 $
83
(51)
8,465
(8,102)
—
—
59
(61)
6,258
(8,681)
5,134 $
39,978 $
265 $
8,425 $
59,369 $
266
—
—
266
(1) For purposes of risk attribution by component, foreign exchange refers only to the risk from market movements in period-end rates. Forwards, futures, options and swaps with maturities
greater than period-end have embedded interest rate risk that is captured by the measures used for interest rate risk. Accordingly, the interest rate risk embedded in these foreign exchange
instruments is included in the interest rate risk component.
Asset and Liability Management Activities
The primary objective of asset and liability management is to provide sustainable NII under varying economic
conditions, while protecting the economic value of the assets and liabilities carried on our consolidated statement of
condition from the adverse effects of changes in interest rates. While many market factors affect the level of NII and
the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in
interest rates. Most of our NII is earned from the investment of client deposits generated by our businesses. We
invest these client deposits in assets that conform generally to the characteristics of our balance sheet liabilities,
including the currency composition of our significant non-U.S. dollar denominated client liabilities.
We quantify NII sensitivity using an earnings simulation model that includes our expectations for new business
growth, changes in balance sheet mix and investment portfolio positioning. This measure compares our baseline
view of NII over a twelve-month horizon, based on our internal forecast of interest rates, to a wide range of rate
shocks. Table 38, Key Interest Rates for Baseline Forecasts, presents the spot and 12-month forward rates used in
our baseline forecasts at December 31, 2020 and December 31, 2019. Our December 31, 2020 baseline forecast
assumes no changes by the Federal Reserve over the next 12 months.
TABLE 38: KEY INTEREST RATES FOR BASELINE FORECASTS
Spot rates
12-month forward rates
0.25 %
0.25
0.93 %
1.12
1.75 %
1.50
1.92 %
1.95
December 31, 2020
December 31, 2019
Fed Funds Target
10-Year Treasury
Fed Funds Target
10-Year Treasury
In Table 39: Net Interest Income Sensitivity, we report the expected change in NII over the next twelve months
from instantaneous shocks to various tenors on the yield curve, including the impacts from U.S. and non-U.S. rates.
Each scenario assumes no management action is taken to mitigate the adverse effects of interest rate changes on
our financial performance. While investment securities balances can fluctuate with the level of rates as prepayment
State Street Corporation | 110
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
assumptions change, our modeling approach in both the December 31, 2020 and December 31, 2019 reporting
periods was to keep our balance sheet consistent with our baseline outlook in both higher and lower rate scenarios.
Beginning with the December 31, 2020 reporting period, we have enhanced our NII sensitivity methodology so that
the full impact of the shock is realized for all currencies even if the result is negative interest rates. Prior to the
December 31, 2020 reporting period, our results in lower rate scenarios were impacted by an assumed floor at zero
for certain currencies including U.S. dollar. Given the higher level of market interest rates during the December 31,
2019 reporting period, our prior year’s reported NII sensitivity results would not materially change using the new
flooring methodology.
TABLE 39: NET INTEREST INCOME SENSITIVITY
(In millions)
Rate change:
Parallel shifts:
+100 bps shock
–100 bps shock
Steeper yield curve:
'+100 bps shift in long-end rates(1)
'-100 bps shift in short-end rates(1)
Flatter yield curve:
'+100 bps shift in short-end rates(1)
'-100 bps shift in long-end rates(1)
December 31, 2020
December 31, 2019
U.S. Dollar
All Other
Currencies
Total
U.S. Dollar
All Other
Currencies
Total
Benefit (Exposure)
Benefit (Exposure)
$
410 $
591
172 $
196
582 $
787
135
743
282
(141)
3
199
168
(3)
138
942
450
(144)
67 $
175 $
(214)
176
(16)
(97)
(184)
81
6
86
170
(6)
242
(133)
182
70
73
(190)
(1) The short end is 0-3 months. The long end is 5 years and above. Interim term points are interpolated.
As of December 31, 2020, NII is expected to benefit from both parallel increases and decreases in interest
rates. Compared to December 31, 2019, our NII is more sensitive to parallel rate increases primarily driven by
higher levels of deposits and assumptions for lower deposit betas. Our positioning to parallel rate decreases has
shifted to benefit NII due to passing through negative rates on higher deposit balances with higher betas.
U.S. dollar NII as of December 31, 2020 is positioned to benefit from both parallel increases and decreases in
interest rates. Compared to December 31, 2019, our U.S. dollar NII benefit to higher rates has increased primarily
due to higher levels of deposits and assumptions for lower deposit betas. Compared to December 31, 2019, our
U.S. dollar NII sensitivity to lower rates changed from NII exposure to a benefit as a result of passing through
negative rates on higher deposit balances with higher betas.
NII is still positioned to benefit from changes in non-U.S. interest rates with the majority of our sensitivity
derived from the short-end of the curve given deposit pricing expectations. Compared to December 31, 2019, our
non-U.S. benefit from higher rates is largely unchanged while the benefit from lower rates has increased. The
increased benefit from lower rates is mainly driven by passing through negative rates on higher deposit balances
with higher betas.
EVE sensitivity is a discounted cash flow model designed to estimate the fair value of assets and liabilities
under a series of interest rate shocks over a long-term horizon. In the following table, we report our EVE sensitivity
to 200 bps instantaneous rate shocks, relative to spot interest rates. Management compares the change in EVE
sensitivity against our aggregate Tier 1 and Tier 2 risk-based capital, calculated in conformity with current applicable
regulatory requirements. EVE sensitivity is dependent on the timing of interest and principal cash flows. Also, the
measure only evaluates the spot balance sheet and does not include the impact of new business assumptions.
TABLE 40: ECONOMIC VALUE OF EQUITY SENSITIVITY
(In millions)
Rate change:
+200 bps shock
As of December 31,
2020
2019
$
Benefit (Exposure)
(1,603) $
(1,966)
–200 bps shock
1,292
As of December 31, 2020, EVE sensitivity remains exposed to upward shifts in interest rates. Compared to
December 31, 2019, the change in the up 200 bps instantaneous shock scenario was primarily driven by the benefit
from increased liability duration from deposit modeling updates and hedging activity. Compared to December 31,
2019, the change in the down 200 bps scenario was primarily driven by decreased liability duration from higher
deposit betas, combined with a full realization of the shock.
5,538
State Street Corporation | 111
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Both NII sensitivity and EVE sensitivity are
routinely monitored as market conditions change. For
additional information about our Asset and Liability
Management Activities,
to Management's
Discussion and Analysis of Financial Condition and
Results of Operations, "Risk Management".
Model Risk Management
refer
The use of models is widespread throughout the
financial services industry, with large and complex
organizations relying on sophisticated models to
support numerous aspects of their financial decision
making. The models contemporaneously represent
both a
financial
management and a source of risk. In large banking
organizations
influence
business decisions, and model failure could have a
harmful effect on our financial performance. As a
result, the MRM Framework seeks to mitigate our
model risk.
significant advancement
like us, model
results
in
Our MRM program has
three principal
components:
roles and
the authority
• A model risk governance program
responsibilities,
that defines
including
to restrict model
usage, provides policies and guidance,
monitors compliance and reports regularly to
the Board on the overall degree of model risk
across the corporation;
• A model development process that
focuses on sound design and computational
accuracy, and includes activities designed to
test for robustness, stability and sensitivity to
assumptions; and
• An
independent model validation
function designed to verify that models are
conceptually
computationally
accurate, are performing as expected, and
are in line with their design objectives.
sound,
The MRM Framework, highlighted above, also
provides insight and guidance into addressing key
model risks that arise. In 2020, MRM required
enhanced communication, prioritization of reviews
due to model changes, greater documentation related
to overlays, and enhanced on-going monitoring to
mitigate the increased model risk brought on by
volatility due to the COVID-19 pandemic.
Governance
Models used in the regulatory capital calculation
can only be deployed for use after undergoing a
model validation by ERM's MRM group. The model
validation results and/or a decision by the Model Risk
Committee must permit model usage or the model
may not be used.
ERM’s MRM group is responsible for defining
the corporate-wide model risk governance framework,
maintaining policies that achieve the framework’s
objectives. All regulatory capital calculation models,
including any artificial
intelligence and machine
learning models, must comply with the model risk
governance framework and corresponding policies.
The team is responsible for overall model risk
governance capabilities, with particular emphasis in
the areas of model validation, model risk reporting,
model performance monitoring, tracking of new model
development status and committee-level review and
challenge.
MRC, which is composed of senior managers
responsible for representing functional areas and
business units with key models across
the
organization,
to MRAC, and provides
guidance and oversight to the MRM function.
reports
Model Development and Usage
Models are developed under
standards
governing data sourcing, methodology selection and
model integrity testing. Model development includes a
statement of purpose to align development with
intended use. It also includes a comparison of
alternative approaches to promote a sound modeling
approach.
Model developers conduct an assessment of
data quality and relevance. The development teams
conduct a variety of tests of the accuracy, robustness
and stability of each model.
Model owners submit models to the MVG for
validation on a regular basis, as per the existing
policy.
Model Validation
MVG is part of MRM within ERM and performs
model validations and reviews. MVG is independent,
as contemplated by applicable bank regulatory
requirements, of both the developers and users of the
models. MVG validates models through an evaluation
process that assesses the appropriateness, accuracy,
and suitability of data
inputs, methodologies,
documentation, assumptions, and processing code.
Model validation also encompasses an assessment
of model performance, sensitivity, and robustness, as
well as a model’s potential limitations given its
particular assumptions or deficiencies. Based on the
results of its review, MVG issues a model use
decision and may require remedial actions and/or
compensating controls on model use. MVG also
maintains a model risk rating system, which assigns a
risk rating to each model based on an assessment of
a model's inherent and residual risks. These ratings
aid in the understanding and reporting of model risk
across the model portfolio, and enable the triaging of
needs for remediation.
Although model validation is the primary method
of subjecting models to independent review and
in practice, a multi-step governance
challenge,
State Street Corporation | 112
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
process provides the opportunity for challenge by
multiple parties. First, MVG conducts a model
validation and issues a model use decision. MVG
communicates their result as one of the following
three outcomes:
“Approved with
“Approved”,
conditions”, or “Not Approved”. There are two ways
in which a model can be deemed “Not approved for
Use” given a validation: 1) the aggregation of the
model scoring within MRM’s Model Risk Rating
System (MRRS) model is poor enough to result in a
“high” rating, or 2) the scoring of one or more MRRS
model element(s) is deemed “critical” resulting in an
automatic “high” rating irrespective of the other
elements as the “critical” element(s) undermines the
model. Second, these decisions may be reviewed,
challenged, and confirmed by the MRC. Finally,
model use decisions, risk ratings, and overall levels of
model risk may be reported to and reviewed by
MRAC. MRM also reports regularly on model risk
issues to the Board.
Strategic Risk Management
We define strategic risk as the current or
prospective impact on earnings or capital arising from
adverse business decisions, improper implementation
of strategic initiatives, or lack of responsiveness to
industry-wide changes. Strategic risks are influenced
by changes in the competitive environment; decline in
market performance or changes in our business
activities; and the potential secondary impacts of
reputational risks, not already captured as market,
interest rate, credit, operational, model or liquidity
risks. We
into our
assessment of our business plans and risk and
capital management processes. Active management
of strategic risk is an integral component of all
aspects of our business.
incorporate strategic
risk
the
Separating the effects of a potential material
adverse event into operational and strategic risk is
sometimes difficult. For instance, the direct financial
impact of an unfavorable event in the form of fines or
penalties would be classified as an operational risk
impact on our reputation and
loss, while
consequently
loss of clients and
corresponding decline in revenue would be classified
as a strategic risk loss. An additional example of
strategic risk is the integration of a major acquisition.
Failure to successfully integrate the operations of an
acquired business, and the resultant inability to retain
clients and
the associated revenue, would be
classified as a loss due to strategic risk.
the potential
Strategic risk is managed with a long-term focus.
Techniques for its assessment and management
include the development of business plans, which are
subject to robust review and challenge from senior
management and the Board of Directors, as well as a
formal review and approval process for all new
business and product proposals. The potential impact
of the various elements of strategic risk is difficult to
quantify with any degree of precision. We use a
combination of historical earnings volatility, scenario
analysis, stress-testing and management judgment to
help assess the potential effect on us attributable to
strategic risk. Management and control of strategic
risks are generally the responsibility of the business
units, with oversight from the control functions, as
part of their overall strategic planning and internal risk
management processes.
Capital
Managing our capital
involves evaluating
whether our actual and projected levels of capital are
commensurate with our risk profile, are in compliance
with all applicable regulatory requirements and are
sufficient to provide us with the financial flexibility to
undertake future strategic business initiatives. We
assess capital adequacy based on relevant regulatory
capital requirements, as well as our own internal
capital goals, targets and other relevant metrics.
Framework
Our objective with respect to management of our
capital is to maintain a strong capital base in order to
provide financial flexibility for our business needs,
including funding corporate growth and supporting
clients’ cash management needs, and to provide
protection against loss to depositors and creditors.
We strive to maintain an appropriate level of capital,
commensurate with our risk profile, on which an
attractive return to shareholders is expected to be
realized over both the short and long-term, while
protecting our obligations to depositors and creditors
and complying with regulatory capital requirements.
Our capital management focuses on our risk
exposures, the regulatory requirements applicable to
us with respect to multiple capital measures, the
evaluations and resulting credit ratings of the major
independent rating agencies, our return on capital at
both the consolidated and line-of-business level and
our capital position relative to our peers.
Assessment of our overall capital adequacy
includes the comparison of capital sources with
capital uses, as well as the consideration of the
quality and quantity of the various components of
capital. The assessment seeks to determine the
optimal level of capital and composition of capital
instruments to satisfy all constituents of capital, with
the lowest overall cost to shareholders. Other factors
considered in our assessment of capital adequacy
are strategic and contingency planning, stress testing
and planned capital actions.
State Street Corporation | 113
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Capital Adequacy Process (CAP)
Stress Testing
to
regulatory
the minimum
Our primary federal banking regulator is the
Federal Reserve. Both we and State Street Bank are
subject
capital
requirements established by the Federal Reserve and
defined in the Federal Deposit Insurance Corporation
Improvement Act. State Street Bank must exceed the
regulatory capital thresholds for “well capitalized” in
order for our Parent Company to maintain its status
as a financial holding company. Accordingly, one of
to capital
our primary objectives with
management is to exceed all applicable minimum
regulatory capital requirements and for State Street
Bank
the PCA
guidelines established by the FDIC. Our capital
management activities are conducted as part of our
corporate-wide CAP and associated Capital Policy
and Guidelines.
“well-capitalized” under
respect
to be
We consider capital adequacy to be a key
element of our financial well-being, which affects our
ability to attract and maintain client relationships;
operate effectively in the global capital markets; and
satisfy regulatory, security holders and shareholder
needs. Capital is one of several elements that affect
our credit ratings and the ratings of our principal
subsidiaries.
In conformity with our Capital Policy and
Guidelines, we strive to achieve and maintain specific
internal capital levels, not just at a point in time, but
over time and during periods of stress, to account for
changes in our strategic direction, evolving economic
conditions, and financial and market volatility. We
have developed and implemented a corporate-wide
CAP to assess our overall capital in relation to our
risk profile and to provide a comprehensive strategy
for maintaining appropriate capital levels. The CAP
considers material risks under multiple scenarios,
with an emphasis on stress scenarios, and
encompasses existing processes and systems used
to measure our capital adequacy.
Capital Contingency Planning
Contingency planning is an integral component
of capital management. The objective of contingency
planning is to monitor current and forecast levels of
select capital, liquidity and other measures that serve
as early indicators of a potentially adverse capital or
liquidity adequacy situation. These measures are one
of the inputs used to set our internal capital adequacy
level. We review
for
appropriateness and relevance in relation to our
financial budget and capital plan. In addition, we
maintain an inventory of capital contingency actions
designed to conserve or generate capital to support
the unique risks in our business model, our client and
investor demands and regulatory requirements.
these measures annually
We administer a robust business-wide stress-
testing program that executes stress tests each year
to assess the institution’s capital adequacy and/or
future performance under adverse conditions. Our
stress testing program is structured around what we
determine to be the key risks inherent in our
business, as assessed through a recurring material
risk
risk
identification process. The material
represents a bottom-up
identification process
institution’s most
approach
significant risk exposures across all on- and off-
balance sheet risk-taking activities, including credit,
market, liquidity, interest rate, operational, fiduciary,
business, reputation and regulatory risks. These key
risks serve as an organizing principle for much of our
risk management framework, as well as reporting,
including the “risk dashboard” provided to the Board.
identifying
the
to
In connection with the focus on our key risks,
each stress test incorporates idiosyncratic loss events
tailored to our unique risk profile and business
activities. Due to the nature of our business model
and our consolidated statement of condition, our risks
differ from those of a traditional commercial bank.
Over the past few years, stress scenarios have
included a deep recession in the U.S., including
impacts from the COVID-19 pandemic, a break-up of
the Eurozone, a severe recession in China and an oil
shock precipitated by turmoil in the Middle East/North
Africa region.
have
organizations
The Federal Reserve requires bank holding
companies with total consolidated assets of $50
billion or more, which includes us, to submit a capital
plan on an annual basis. The Federal Reserve uses
incorporates
its annual CCAR process, which
hypothetical financial and economic stress scenarios,
to review those capital plans and assess whether
banking
planning
processes that account for idiosyncratic risks and
provide for sufficient capital to continue operations
throughout times of economic and financial stress. As
part of its CCAR process, the Federal Reserve
assesses each organization’s capital adequacy,
capital planning process and plans to distribute
capital, such as dividend payments or stock purchase
programs. Management and Board risk committees
review, challenge and approve CCAR results and
the Federal
assumptions before submission
Reserve.
capital
to
Through the evaluation of our capital adequacy
and/or future performance under adverse conditions,
the stress testing process provides us important
insights for capital planning, risk management and
strategic decision-making.
State Street Corporation | 114
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Governance
In order to support integrated decision making,
we have identified three management elements to aid
in the compatibility and coordination of our CAP:
• Risk Management -
identification,
measurement, monitoring and forecasting of
different types of risk and their combined
impact on capital adequacy;
• Capital management - determination
of optimal capital levels; and
• Business Management - strategic
and
forecasting
budgeting,
planning,
performance management.
We have a hierarchical structure supporting
appropriate committee review of relevant risk and
capital information. The ongoing responsibility for
capital management rests with our Treasurer. The
Capital Management group within Global Treasury is
responsible for the Capital Policy and Guidelines,
development of the Capital Plan, the oversight of
global capital management and optimization.
The MRAC provides oversight of our capital
management, our capital adequacy, our internal
the major
targets and
the expectations of
independent credit rating agencies.
In addition,
MRAC approves our balance sheet strategy and
related activities. The Board’s RC assists the Board in
fulfilling its oversight responsibilities related to the
assessment and management of risk and capital. Our
Capital Policy is reviewed and approved annually by
the Board's RC.
We have been
Global Systemically Important Bank
identified by
the Financial
Stability Board and the Basel Committee on Banking
Supervision as a G-SIB. Our designation as a G-SIB
is based on a number of factors, as evaluated by
banking regulators, and requires us to maintain an
additional capital surcharge above the minimum
capital ratios set forth in the Basel III rule.
We and our depositary institution subsidiaries
are subject to the current Basel III minimum risk-
based capital and leverage ratio guidelines.
Additional information about G-SIBs is provided
under "Regulatory Capital Adequacy and Liquidity
Standards"
in
in
Business in this Form 10-K.
"Supervision and Regulation"
Regulatory Capital
We and State Street Bank, as advanced
approaches banking organizations, are subject to the
U.S. Basel III framework. Provisions of the Basel III
rule became effective with full implementation on
January 1, 2019. We are also subject to the final
market risk capital rule issued by U.S. banking
regulators effective as of January 2013.
The Basel III rule provides for two frameworks
for monitoring capital adequacy: the “standardized”
The
approach and the “advanced” approaches, applicable
to advanced approaches banking organizations, like
prescribes
us.
standardized calculations for credit RWA, including
specified risk weights for certain on- and off-balance
sheet exposures.
standardized
approach
the
The advanced approaches consist of
Advanced Internal Ratings-Based Approach used for
the calculation of RWA related to credit risk, and the
Advanced Measurement Approach used
the
calculation of RWA related to operational risk.
for
The market risk capital rule requires us to use
internal models to calculate daily measures of VaR,
which reflect general market risk for certain of our
trading positions defined by the rule as “covered
positions,” as well as stressed-VaR measures to
supplement
the VaR measures. The rule also
requires a public disclosure composed of qualitative
and quantitative information about the market risk
associated with our trading activities and our related
VaR and stressed-VaR measures. The qualitative and
quantitative
is
information required by
this
provided under "Market Risk"
Management's Discussion and Analysis.
the rule
included
in
in
As required by the Dodd-Frank Act enacted in
2010, and the Stress Capital Buffer (SCB) rule
enacted in 2020, we and State Street Bank, as
advanced approaches banking organizations, are
subject to a "capital floor," also referred to as the
Collins Amendment,
the assessment of our
regulatory capital adequacy, including the capital
conservation buffer (CCB) and the SCB, for the
advanced approach and standardized approach,
respectively, and a countercyclical capital buffer. The
countercyclical buffer is currently set to zero by the
U.S. federal banking agencies. In addition, we are
subject to a G-SIB surcharge. Our risk-based capital
ratios for regulatory assessment purposes are the
lower of each ratio calculated under the standardized
approach and the advanced approaches.
The SCB replaced, under the standardized
approach, the capital conservation buffer with a buffer
calculated as the difference between the institution’s
starting and lowest projected CET1 ratio under the
CCAR severely adverse scenario plus planned
common stock dividend payments (as a percentage
of RWA) from the fourth through seventh quarter of
the CCAR planning horizon. The SCB requirement,
which became effective October 1, 2020, can be no
less than 2.5% of RWA. Breaching the SCB or other
regulatory buffer or surcharge will limit a banking
organization’s ability to make capital distributions and
discretionary bonus payments to executive officers.
The countercyclical capital buffer is currently set at
zero by U.S. banking regulators.
State Street Corporation | 115
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table presents the regulatory capital structure and related regulatory capital ratios for us and
State Street Bank as of the dates indicated. We are subject to the more stringent of the risk-based capital ratios
calculated under the standardized approach and those calculated under the advanced approaches in the
assessment of our capital adequacy under applicable bank regulatory standards.
TABLE 41: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
(Dollars in millions)
Common shareholders' equity:
State Street Corporation
State Street Bank
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Basel III
Advanced
Approaches
December 31,
2019
Basel III
Standardized
Approach
December 31,
2019
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Basel III
Advanced
Approaches
December 31,
2019
Basel III
Standardized
Approach
December 31,
2019
Common stock and related surplus
$
10,709
$
10,709
$
10,636
$
10,636
$
12,893
$
12,893
$
12,893
$
12,893
Retained earnings
23,442
23,442
21,918
21,918
12,939
12,939
13,218
13,218
Accumulated other comprehensive income
(loss)
187
187
(870)
(870)
Treasury stock, at cost
(10,609)
(10,609)
(10,209)
(10,209)
371
—
371
—
(654)
—
(654)
—
Total
23,729
23,729
21,475
21,475
26,203
26,203
25,457
25,457
Regulatory capital adjustments:
Goodwill and other intangible assets, net of
associated deferred tax liabilities
Other adjustments(1)
Common equity tier 1 capital
Preferred stock
Tier 1 capital
Qualifying subordinated long-term debt
Allowance for credit losses
Total capital
Risk-weighted assets:
Credit risk(2)
Operational risk(3)
Market risk
(9,019)
(333)
14,377
2,471
16,848
961
1
(9,019)
(333)
14,377
2,471
16,848
961
148
(9,112)
(150)
12,213
2,962
15,175
1,095
5
(9,112)
(150)
12,213
2,962
15,175
1,095
90
(8,745)
(152)
17,306
—
(8,745)
(152)
17,306
—
17,306
17,306
966
10
966
148
(8,839)
(8,839)
(1)
(1)
16,617
16,617
—
16,617
1,099
3
—
16,617
1,099
90
$
17,810
$
17,957
$
16,275
$
16,360
$
18,282
$
18,420
$
17,719
$
17,806
$
63,367
$
114,892
$
54,763
$ 102,367
$
58,960
$
110,797
$
51,610
$
98,979
44,150
2,188
NA
2,188
47,963
1,638
NA
1,638
43,663
2,188
NA
2,188
44,138
1,638
NA
1,638
Total risk-weighted assets
Adjusted quarterly average assets
$
$
109,705
263,490
$
$
117,080
$ 104,364
$ 104,005
263,490
$ 219,624
$ 219,624
$
$
104,811
260,489
$
$
112,985
$
97,386
$ 100,617
260,489
$ 216,397
$ 216,397
Capital
Ratios:
2020 Minimum
Requirements(4)
2019 Minimum
Requirements(5)
Common
equity tier 1
capital
Tier 1
capital
Total capital
8.0 %
8.5 %
13.1 %
12.3 %
11.7 %
11.7 %
16.5 %
15.3 %
17.1 %
16.5 %
9.5
11.5
10.0
12.0
15.4
16.2
14.4
15.3
14.5
15.6
14.6
15.7
16.5
17.4
15.3
16.3
17.1
18.2
16.5
17.7
(1) Other adjustments within CET1 capital primarily include the overfunded portion of our defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax
assets, and other required credit risk based deductions.
(2) Includes a CVA which reflects the risk of potential fair value adjustments for credit risk reflected in our valuation of over-the-counter (OTC) derivative contracts. We used a simple CVA
approach in conformity with the Basel III advanced approaches.
(3) Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from period-to-period,
without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may differ from the dates and periods as
of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for model updates and, if applicable, model revalidation
and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output of our operational RWA under the advanced approaches depending
on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(4) Minimum requirements include a capital conservation buffer of 2.5% and a stress capital buffer of 2.5% for advanced and standardized, respectively, a G-SIB surcharge of 1.0% and a
countercyclical buffer of 0%.
(5) Minimum requirements include a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0%.
NA Not applicable
Our CET1 capital increased $2.16 billion as of December 31, 2020 compared to December 31, 2019, primarily
driven by net income and accumulated other comprehensive income in the year ended December 31, 2020, partially
offset by capital distributions from common and preferred stock dividends and first quarter 2020 common stock
repurchases.
Our Tier 1 capital increased $1.67 billion as of December 31, 2020 compared to December 31, 2019 under
both the advanced approaches and standardized approach due to increase in CET1 capital, partially offset by the
redemption of all outstanding Series C preferred stock. Total capital increased under the advanced approaches and
standardized approach by $1.54 billion and $1.60 billion, respectively, due to an increase in our Tier 1 capital,
partially offset by a decrease in Tier 2 capital.
State Street Corporation | 116
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The table below presents a roll-forward of CET1 capital, Tier 1 capital and total capital for the years ended
December 31, 2020 and 2019.
TABLE 42: CAPITAL ROLL-FORWARD
(In millions)
Common equity tier 1 capital:
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December, 31,
2020
Basel III
Advanced
Approaches
December 31,
2019
Basel III
Standardized
Approach
December 31,
2019
Common equity tier 1 capital balance, beginning of period
$
12,213 $
12,213 $
11,580 $
Net income
Changes in treasury stock, at cost
Dividends declared
Goodwill and other intangible assets, net of associated deferred tax liabilities
Effect of certain items in accumulated other comprehensive income (loss)
Other adjustments
Changes in common equity tier 1 capital
Common equity tier 1 capital balance, end of period
Additional tier 1 capital:
Tier 1 capital balance, beginning of period
Change in common equity tier 1 capital
Net issuance of preferred stock
Changes in tier 1 capital
Tier 1 capital balance, end of period
Tier 2 capital:
Tier 2 capital balance, beginning of period
Net issuance and changes in long-term debt qualifying as tier 2
Changes in allowance for credit losses(1)
Changes in tier 2 capital
Tier 2 capital balance, end of period
Total capital:
Total capital balance, beginning of period
Changes in tier 1 capital
Changes in tier 2 capital
2,420
(400)
(886)
93
1,057
(120)
2,164
14,377
15,175
2,164
(491)
1,673
16,848
1,100
(134)
(4)
(138)
962
16,275
1,673
(138)
2,420
(400)
(886)
93
1,057
(120)
2,164
14,377
15,175
2,164
(491)
1,673
16,848
1,185
(134)
58
(76)
1,109
16,360
1,673
(76)
2,242
(1,494)
(939)
238
462
124
633
11,580
2,242
(1,494)
(939)
238
462
124
633
12,213
12,213
15,270
15,270
633
(728)
(95)
633
(728)
(95)
15,175
15,175
792
317
(9)
308
861
317
7
324
1,100
1,185
16,062
16,131
(95)
308
(95)
324
Total capital balance, end of period
$
17,810 $
17,957 $
16,275 $
16,360
(1) We adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2020. Please refer to Note 1 to the
consolidated financial statements in this Form 10-K for additional information.
The following table presents a roll-forward of the Basel III advanced approaches and standardized approach
RWA for the years ended December 31, 2020 and 2019.
TABLE 43: ADVANCED & STANDARDIZED APPROACHES RISK-WEIGHTED ASSETS ROLL-FORWARD
(In millions)
Basel III
Advanced
Approaches
December 31, 2020
Basel III
Advanced
Approaches
December 31, 2019
Basel III
Standardized
Approach December
31, 2020
Basel III
Standardized
Approach December
31, 2019
Total risk-weighted assets, beginning of period
$
104,364 $
95,315 $
104,005 $
98,820
Changes in credit risk-weighted assets:
Net increase (decrease) in investment securities-wholesale
Net increase (decrease) in loans
Net increase (decrease) in securitization exposures
Net increase (decrease) in repo-style transaction exposures
Net increase (decrease) in over-the-counter derivatives
exposures(1)
Net increase (decrease) in all other(2)(3)
Net increase (decrease) in credit risk-weighted assets
Net increase (decrease) in market risk-weighted assets
Net increase (decrease) in operational risk-weighted assets
3,008
2,973
578
1,763
780
(498)
8,604
550
(3,813)
3,470
2,586
(140)
(45)
26
1,128
7,025
121
1,903
1,762
3,638
351
3,895
457
2,422
12,525
550
N/A
3,882
809
(140)
365
(1,124)
1,272
5,064
121
N/A
Total risk-weighted assets, end of period
$
109,705 $
104,364 $
117,080 $
104,005
(1) Under the advanced approaches, includes CVA RWA.
(2)Includes assets not in a definable category, non-material portfolio, cleared transactions, other wholesale, cash and due from banks, interest-bearing deposits with banks and equity exposures.
(3) December 2019 includes a 6% credit risk supervisory charge.
State Street Corporation | 117
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
As of December 31, 2020, total advanced
approaches RWA increased $5.34 billion compared to
December 31, 2019, primarily due to an increase in
credit risk RWA, partially offset by a decrease in
operational RWA. The increase in credit risk RWA
was primarily driven by an increase in investment
securities - wholesale RWA, loans RWA, and repo-
style transactions RWA.
As of December 31, 2020, total standardized
approach RWA increased $13.08 billion compared to
December 31, 2019, primarily due to higher credit risk
RWA. The increase in credit risk RWA was primarily
driven by an increase in repo-style transactions RWA,
loans RWA, and all other RWA.
The regulatory capital ratios as of December 31,
2020, presented in Table 41: Regulatory Capital
Structure and Related Regulatory Capital Ratios, are
calculated under the standardized approach and
advanced approaches in conformity with the Basel III
rule. The advanced approaches based ratios reflect
calculations and determinations with respect to our
capital and related matters as of December 31, 2020,
based on our and external data, quantitative
formulae, statistical models, historical correlations
and assumptions, collectively
to as
“advanced systems,” in effect and used by us for
those purposes as of the time we first reported such
ratios in a quarterly report on Form 10-Q or an annual
report on Form 10-K. Significant components of these
advanced systems involve the exercise of judgment
by us and our regulators, and our advanced systems
individually or collectively, precisely
may not,
represent or calculate the scenarios, circumstances,
outputs or other results for which they are designed
or intended.
referred
Our advanced systems are subject to update
and periodic revalidation in response to changes in
our business activities and our historical experiences,
forces and events experienced by the market broadly
or by individual financial institutions, changes in
regulations and regulatory interpretations and other
factors, and are also subject to continuing regulatory
review and approval. For example, a significant
operational loss experienced by another financial
institution, even if we do not experience a related
loss, could result in a material change in the output of
our advanced systems and a corresponding material
change in our risk exposures, our total RWA and our
capital
to prior periods. An
operational loss that we experience could also result
in a material change in our capital requirements for
operational risk under the advanced approaches,
depending on the severity of the loss event, its
characterization among
the seven Basel-defined
UOM, and the stability of the distributional approach
for a particular UOM, and without direct correlation to
ratios compared
the effects of the loss event, or the timing of such
effects, on our results of operations.
Due to the influence of changes in these
advanced systems, whether resulting from changes in
data inputs, regulation or regulatory supervision or
interpretation, specific to us or market activities or
experiences or other updates or factors, we expect
that our advanced systems and our capital ratios
calculated in conformity with the Basel III rule will
change and may be volatile over time, and that those
latter changes or volatility could be material as
calculated and measured from period to period. The
full effects of the Basel III rule on us and State Street
Bank are therefore subject to further evaluation and
also to further regulatory guidance, action or rule-
making.
State Street Corporation | 118
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Tier 1 and Supplementary Leverage Ratios
Total Loss-Absorbing Capacity (TLAC)
We are subject to a minimum Tier 1 leverage
ratio and a supplementary leverage ratio. The Tier 1
leverage ratio is based on Tier 1 capital and adjusted
quarterly average on-balance sheet assets. The Tier
1 leverage ratio differs from the SLR primarily in that
the denominator of the Tier 1 leverage ratio is a
quarterly average of on-balance sheet assets, while
the SLR additionally
includes off-balance sheet
exposures. We must maintain a minimum Tier 1
leverage ratio of 4%.
We are also subject to a minimum SLR of 3%,
and as a U.S. G-SIB, we must maintain a 2% SLR
buffer in order to avoid any limitations on distributions
to shareholders and discretionary bonus payments to
certain executives. If we do not maintain this buffer,
limitations on these distributions and discretionary
bonus payments would be increasingly stringent
based upon the extent of the shortfall.
TABLE 44: TIER 1 AND SUPPLEMENTARY LEVERAGE
RATIOS
is
to
intended
In 2016, the Federal Reserve released its final
rule on TLAC, LTD and clean holding company
requirements for U.S. domiciled G-SIBs, such as us,
that
the resiliency and
improve
resolvability of certain U.S. banking organizations
through enhanced prudential standards. Among other
things, the TLAC final rule requires us to comply with
minimum
for external TLAC and
external LTD effective January 1, 2019. Specifically,
we must hold:
requirements
Combined eligible
tier 1 regulatory
capital and LTD
Amount equal to:
Greater of:
•
21.5% of
total RWA (18.0%
minimum plus 2.5% plus a G-
for
SIB surcharge calculated
these purposes under Method 1
of 1.0% plus any applicable
counter- cyclical buffer, which is
currently 0%); and
•
9.5% of total leverage exposure
(7.5% minimum plus the SLR
buffer of 2.0%), as defined by
the SLR final rule.
(Dollars in millions)
State Street:
Tier 1 capital
Average assets
December 31,
2020
December 31,
2019
$
16,848
$
15,175
277,055
228,886
Qualifying external
LTD
Greater of:
•
7.0% of RWA (6.0% minimum
plus
surcharge
calculated for these purposes
under method 2 of 1.0%); and
a G-SIB
•
4.5% of total leverage exposure,
as defined by the SLR final rule.
Less: adjustments for deductions
from tier 1 capital and other
Adjusted average assets for Tier 1
leverage ratio
Derivatives and repo-style
transactions and off-balance sheet
exposures
Adjustments for deductions of
qualifying central bank deposits
(13,565)
(9,262)
263,490
219,624
34,379
28,238
(90,322)
—
As of April 1, 2020,
the TLAC and LTD
requirements calibrated to the SLR denominator
reflect the deduction of certain central bank balances
as prescribed by the regulatory relief implemented
under the EGRRCPA.
Total assets for SLR
$
207,547
$
247,862
The following table presents external LTD and
Tier 1 leverage ratio(1)
Supplementary leverage ratio
6.4 %
8.1
6.9 %
6.1
State Street Bank(2):
Tier 1 capital
Average assets
$
17,306
$
16,617
273,599
225,234
Less: adjustments for deductions
from tier 1 capital and other
Adjusted average assets for Tier 1
leverage ratio
Off-balance sheet exposures
Adjustments for deductions of
qualifying central bank deposits
(13,110)
(8,837)
260,489
38,591
216,397
28,266
(80,935)
—
Total assets for SLR
$
218,145
$
244,663
Tier 1 leverage ratio (1)
Supplementary leverage ratio
6.6 %
7.9
7.7 %
6.8
(1) Tier 1 leverage ratios were calculated in conformity with the Basel III rule.
(2) The SLR rule requires that, as of January 1, 2018, (i) State Street Bank
maintains an SLR of at least 6.0% to be well capitalized under the U.S. banking
regulators’ Prompt Corrective Action Framework and (ii) we maintain an SLR of at
least 5.0% to avoid limitations on capital distributions and discretionary bonus
payments. In addition to the SLR, State Street Bank is subject to a well-capitalized
Tier 1 leverage ratio requirement of 5.0%.
external TLAC as of December 31, 2020.
TABLE 45: TOTAL LOSS-ABSORBING CAPACITY
(Dollars in millions)
Actual
Requirement
As of December 31, 2020
Total loss-absorbing
capacity (eligible Tier 1
regulatory capacity and
long term debt):
Risk-weighted assets
$ 29,045
24.8 % $ 25,172
21.5 %
Supplemental leverage
ratio
Long term debt:
29,045
14.0
19,717
9.5
Risk-weighted assets
12,197
10.4
Supplemental leverage
ratio
12,197
5.9
8,196
9,340
7.0
4.5
Additional information about TLAC is provided
under
in
"Supervision and Regulation" in Business in this Form
10-K.
Loss-Absorbing Capacity"
"Total
State Street Corporation | 119
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Regulatory Developments
In April 2018, the Federal Reserve issued a proposed rule which would replace the current 2.0% SLR buffer for
G-SIBs, with a buffer equal to 50% of their G-SIB surcharge. This proposal would also make conforming
modifications to our TLAC and eligible LTD requirements applicable to G-SIBs. At this point in time, it is unclear
whether this proposal will be implemented as proposed.
In November 2019, the Federal Reserve and other U.S. federal banking agencies issued a final rule to
implement the Standardized Approach for Counterparty Credit Risk (SA-CCR) as a replacement of the Current
Exposure Method for calculating exposure-at-default of derivatives exposures. Mandatory compliance with the final
rule is required by January 1, 2022.
On March 4, 2020, U.S. federal banking agencies issued the SCB final rule that replaces, under the
standardized approach, the capital conservation buffer (2.5%) with a SCB calculated as the difference between an
institution’s starting and lowest projected CET1 ratio under the CCAR severely adverse scenario plus planned
common stock dividend payments (as a percentage of RWA) from the fourth through seventh quarter of the CCAR
planning horizon. The SCB requirement, which became effective October 1, 2020, can be no less than 2.5% of
RWA.
The Federal Reserve and other U.S. federal banking agencies issued an interim final rule effective in March
2020 and later finalized on a permanent basis on August 26, 2020, which revised the definition of eligible retained
income for all U.S. banking organizations. The revised definition of eligible retained income makes any automatic
limitations on capital distributions, where a banking organization's regulatory ratios were to decline below the
respective minimum requirements, take effect on a more gradual basis.
Following the launch of the MMLF program, which we participate in, the Federal Reserve issued an interim
final rule on March 19, 2020 (followed by a final rule on September 29, 2020), allowing Bank Holding Companies
(BHCs) to exclude assets purchased with the MMLF program from their RWA, total leverage exposure and average
total consolidated assets. For the quarter ended December 31, 2020, we deducted $4.2 billion of MMLF program
average HTM securities.
On March 27, 2020, the BCBS announced the deferral of the implementation of the revisions to the Basel III
framework to January 1, 2023. As of now, the U.S. federal banking agencies have not formally proposed the
implementation of the BCBS revisions.
Effective April 1, 2020, the Federal Reserve and other U.S. federal banking agencies adopted a final rule as
part of EGRRCPA that establishes a deduction for qualifying central bank deposits from a custodial banking
organization’s total leverage exposure equal to the lesser of (i) the total amount of funds the custodial banking
organization and its consolidated subsidiaries have on deposit at qualifying central banks and (ii) the total amount of
client funds on deposit at the custodial banking organization that are linked to fiduciary or custodial and safekeeping
accounts. For the quarter ended December 31, 2020, we deducted $76.7 billion of average balances held on
deposit at central banks from the denominator used in the calculation of our SLR, based on this custodial banking
deduction.
In addition to the regulatory relief granted to custodial banks under the EGRRCPA, an SLR interim final rule
released on April 1, 2020 allows all BHCs to deduct their deposits at Federal Reserve Banks and their investments
in U.S. Treasuries from their total leverage exposure on a temporary basis, from the second quarter of 2020 through
the first quarter of 2021. The temporary deduction of our investment in U.S. Treasuries is incremental to the existing
central bank placement deduction granted to custodian banks under EGRRCPA. For the quarter ended December
31, 2020, we deducted $13.6 billion invested in U.S. Treasuries from our total leverage exposure.
On May 15, 2020, the U.S. federal banking agencies released an interim final rule that also permits insured
depository institution subsidiaries of BHCs to temporarily exclude deposits at Federal Reserve Banks and
investments in U.S. Treasuries from their total leverage exposure, subject to certain conditions. State Street Bank
has elected not to apply such exclusions as of December 31, 2020.
On June 25, 2020, we were notified by the Federal Reserve of the results from the 2020 DFAST stress test,
including our preliminary SCB of 2.5%. Additionally, included in this notification and in light of the considerable
economic uncertainty created by the COVID-19 pandemic, all participating CCAR banking organizations were
required to resubmit their capital plans by November 2, 2020, based on updated scenarios provided by the Federal
Reserve on September 17, 2020.
In line with the decision to administer a new stress test, the Federal Reserve decided to limit the ability of all
CCAR banking organizations to make capital distributions in the third and fourth quarters of 2020, although banking
organizations were permitted to pay common stock dividends at previous levels provided such distributions did not
exceed an amount determined by a formula based on the banking organization's recent income. As a result, CCAR
banking organizations, including us, were not permitted to return capital to shareholders in the form of common
share repurchases during the third quarter and fourth quarter of 2020.
State Street Corporation | 120
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On August 10, 2020, the Federal Reserve confirmed that our SCB is 2.5% for the period starting on October 1,
2020 and ending on September 30, 2021.
On October 20, 2020, the Federal Reserve and other U.S. federal banking agencies issued a final rule that will
require us and State Street Bank to make certain deductions from regulatory capital for investments in certain
unsecured debt instruments, including eligible LTD under the TLAC rule, issued by the Parent Company and other
U.S. and foreign G-SIBs. The final rule will become effective on April 1, 2021.
On December 18, 2020, following the release of a second round of stress test results for 2020, the Federal
Reserve decided to modify the applicable restrictions on capital distributions for the first quarter of 2021. Provided
that we do not increase the amount of our common stock dividends to be larger than the level paid in the second
quarter of 2020, common stock dividends and share repurchases in the first quarter of 2021 will be limited to the
average of our net income for the four preceding quarters plus a number of shares equal to the share issuances in
the quarter related to expensed employee compensation. We also may redeem and make scheduled payments on
additional Tier 1 and Tier 2 capital instruments in the first quarter of 2021. As of now, our capital distributions in the
first quarter of 2021 and beyond will be governed by our minimum capital requirements inclusive of the SCB that will
not be recalibrated based on the stress test results.
For additional information about regulatory developments, refer to the "Regulatory Capital Adequacy and
Liquidity Standards" section of "Supervision and Regulation" in Business in this Form 10-K.
Capital Actions
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and
outstanding as of December 31, 2020:
TABLE 46: PREFERRED STOCK ISSUED AND OUTSTANDING
Preferred
Stock(2):
Issuance Date
Depositary
Shares
Issued
Amount
outstanding
(in millions)
Ownership
Interest Per
Depositary
Share
Liquidation
Preference
Per Share
Liquidation
Preference
Per
Depositary
Share
Per Annum
Dividend Rate
Dividend
Payment
Frequency
Carrying
Value as of
December
31, 2020
(In millions)
Redemption
Date(1)
Series D
February 2014
30,000,000
750
1/4,000th
100,000
25
Series F(3)
May 2015
750,000
750
1/100th
100,000
1,000
Series G
April 2016
20,000,000
500
1/4,000th
100,000
25
Series H
September 2018
500,000
500
1/100th
100,000
1,000
5.90% to but
excluding March
15, 2024, then a
floating rate equal
to the three-month
LIBOR plus
3.108%
5.25% to but
excluding
September 15,
2020, then a
floating rate equal
to the three-month
LIBOR plus
3.597%, or
3.81350% effective
December 15,
2020
5.35% to but
excluding March
15, 2026, then a
floating rate equal
to the three-month
LIBOR plus
3.709%
5.625% to but
excluding
December 15,
2023, then a
floating rate equal
to the three-month
LIBOR plus
2.539%
Quarterly:
March, June,
September
and December
$
742
March 15,
2024
Quarterly:
March, June,
September
and December
742
September 15,
2020
Quarterly:
March, June,
September
and December
493
March 15,
2026
Semi-annually:
June and
December
494
December 15,
2023
(1) On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price
per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(2) The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital
treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid
dividends, without accumulation of any undeclared dividends.
(3) Series F preferred stock is redeemable on September 15, 2020 and on each succeeding dividend payment date. We did not elect redemption on September 15, 2020 or December 15, 2020.
State Street Corporation | 121
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We redeemed all outstanding Series C non-cumulative perpetual preferred stock on March 15, 2020 at a
redemption price of $500 million ($100,000 per share equivalent to $25.00 per depositary share) plus accrued and
unpaid dividends. The difference of $9 million between the redemption value and the net carrying value resulted in
an EPS impact of approximately ($0.03) per share in the first quarter of 2020.
On January 14, 2021, we announced that we will redeem on March 15, 2021 an aggregate of $500 million, or
5,000 of the 7,500 outstanding shares of our non-cumulative perpetual preferred stock, Series F, for cash at a
redemption price of $100,000 per share (equivalent to $1,000 per depositary share) plus all declared and unpaid
dividends. A cash dividend of $953.38 per share of Series F Preferred Stock (or approximately $9.5338 per
depositary share) has been declared for the period from December 15, 2020 up to but not including March 15, 2021
(the “March Dividend”). The March Dividend will be paid separately to the holders of record of the Series F
Preferred Stock as of March 1, 2021 in the customary manner. Accordingly, there will not be any declared and
unpaid dividends included in the Redemption Price.
The following tables present the dividends declared for each of the series of preferred stock issued and
outstanding for the periods indicated:
TABLE 47: PREFERRED STOCK DIVIDENDS
Years Ended December 31,
Dividends
Declared per
Share
2020
Dividends
Declared per
Depositary
Share
Total
Dividends
Declared per
Share
2019
Dividends
Declared per
Depositary
Share
Total
$
1,313 $
0.33 $
6 $
5,250 $
1.32 $
5,900
—
6,223
5,352
5,625
1.48
—
62.23
1.32
56.25
44
—
47
27
28
5,900
6,000
5,250
5,352
5,625
1.48
1.52
52.50
1.32
56.25
26
44
45
40
27
28
$
152
$
210
(Dollars in millions, except
per share amounts)
Preferred Stock:
Series C
Series D
Series E
Series F
Series G
Series H
Total
Common Stock
In June 2019, the Federal Reserve issued a non-objection to our capital plan submitted as part of the 2019
CCAR submission; and in connection with that capital plan, our Board approved a common stock purchase program
authorizing the purchase of up to $2.0 billion of our common stock from July 1, 2019 through June 30, 2020 (the
2019 Program). We repurchased $500 million of our common stock in each of the third and fourth quarters of 2019
and the first quarter of 2020 under the 2019 Program. On March 16, 2020, we, along with the other U.S. G-SIBs,
suspended common share repurchases and maintained this suspension through the fourth quarter of 2020 in
response to the COVID-19 pandemic. This suspension was consistent with limitations imposed by the Federal
Reserve beginning in the second quarter of 2020. As a result, we had no repurchases of our common stock in the
second, third or fourth quarters of 2020. In December 2020, the Federal Reserve issued results of 2020
resubmission stress tests and authorized us to continue to pay common stock dividends at current levels and to
resume repurchasing common shares in the first quarter of 2021. In January 2021, our Board authorized a common
share repurchase program for the purchase of up to $475 million of our common stock through March 31, 2021.
In June 2018, the Federal Reserve issued a conditional non-objection to our 2018 capital plan; and in
connection with that capital plan, our Board approved a common stock purchase program authorizing the purchase
of up to $1.2 billion of our common stock through June 30, 2019 (the 2018 Program), under which we repurchased
$300 million of our common stock in each of the first and second quarters of 2019.
The table below presents the activity under our common stock purchase program for the period indicated:
TABLE 48: SHARES REPURCHASED
2019 Program
6.5 $
77.35 $
500
Year Ended December 31, 2020
Shares Acquired
(In millions)
Average Cost per Share
Total Acquired
(In millions)
State Street Corporation | 122
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The table below presents the dividends declared
on common stock for the periods indicated:
TABLE 49: COMMON STOCK DIVIDENDS
Years Ended December 31,
2020
2019
Dividends
Declared
per Share
Total
(In
millions)
Dividends
Declared
per Share
Total
(In
millions)
We revalue the securities on loan and the collateral
daily to determine if additional collateral is necessary
or if excess collateral is required to be returned to the
borrower. We held, as agent, cash and securities
totaling $463.27 billion and $385.43 billion as
collateral for indemnified securities on loan as of
December 31, 2020 and December 31, 2019,
respectively.
Common
Stock
$
1.98 $
2.08 $
728
734 $
Federal and state banking regulations place
certain restrictions on dividends paid by subsidiary
banks to the parent holding company. In addition,
banking regulators have the authority to prohibit bank
holding companies
from paying dividends. For
information concerning limitations on dividends from
our subsidiary banks, refer to "Related Stockholder
Matters"
for
Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities,
and
financial
statements in this Form 10-K. Our common stock and
preferred stock dividends, including the declaration,
to
timing and amount
consideration and approval by the Board at the
relevant times.
thereof, are subject
Item 5, Market
the consolidated
included under
to Note 15
to
trading programs. The
Stock purchases may be made using various
including open market
types of mechanisms,
purchases, accelerated share
repurchases or
transactions off market and may be made under Rule
10b5-1
timing of stock
purchases, types of transactions and number of
shares purchased will depend on several factors,
including, market conditions and our capital positions,
financial performance and investment opportunities.
The common stock purchase program does not have
specific price targets and may be suspended at any
time.
OFF-BALANCE SHEET ARRANGEMENTS
necessitates
the substantial volume of
On behalf of clients enrolled in our securities
lending program, we lend securities to banks, broker/
dealers and other institutions. In most circumstances,
we indemnify our clients for the fair market value of
those securities against a failure of the borrower to
return such securities. Though these transactions are
collateralized,
these
activities
credit-based
underwriting and monitoring processes. The
aggregate amount of indemnified securities on loan
totaled $440.88 billion and $367.90 billion as of
December 31, 2020 and December 31, 2019,
respectively. We require the borrower to provide
collateral in an amount in excess of 100% of the fair
market value of the securities borrowed. We hold the
collateral received in connection with these securities
lending services as agent, and the collateral is not
recorded in our consolidated statement of condition.
detailed
indemnified
invested. We require
the principal
the
to
The cash collateral held by us as agent is
invested on behalf of our clients. In certain cases, the
cash collateral is invested in third-party repurchase
agreements, for which we indemnify the client against
the
loss of
counterparty
repurchase
agreement to provide collateral in an amount in
excess of 100% of the amount of the repurchase
agreement. In our role as agent, the indemnified
repurchase agreements and the related collateral
held by us are not recorded in our consolidated
statement of condition. Of the collateral of $463.27
billion and $385.43 billion, referenced above, $54.43
billion and $45.66 billion was invested in indemnified
repurchase agreements as of December 31, 2020
and December 31, 2019, respectively. We or our
agents held $58.09 billion and $48.89 billion as
collateral for indemnified investments in repurchase
agreements as of December 31, 2020 and
December 31, 2019, respectively.
Additional
information about our securities
finance activities and other off-balance sheet
arrangements is provided in Notes 10, 12 and 14 to
the consolidated financial statements in this Form 10-
K.
SIGNIFICANT ACCOUNTING ESTIMATES
Our consolidated
financial statements are
prepared in conformity with U.S. GAAP, and we apply
accounting policies that affect the determination of
amounts
financial
statements. Additional information on our significant
accounting policies, including references to applicable
footnotes, is provided in Note 1 to the consolidated
financial statements in this Form 10-K.
the consolidated
reported
in
Certain of our accounting policies, by their
nature, require management to make judgments,
involving significant estimates and assumptions,
about the effects of matters that are inherently
uncertain. These estimates and assumptions are
based on information available as of the date of the
consolidated financial statements, and changes in
this information over time could materially affect the
amounts of assets, liabilities, equity, revenue and
expenses
in subsequent consolidated
reported
financial statements.
Based on the sensitivity of reported financial
statement amounts to the underlying estimates and
State Street Corporation | 123
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
credit
recurring
for
those associated with
allowance
assumptions, the more significant accounting policies
applied by us have been identified by management
fair value
as
measurements,
losses,
impairment of goodwill and other intangible assets,
and contingencies. These accounting policies require
the most subjective or complex judgments, and
underlying estimates and assumptions could be most
subject to revision as new information becomes
judgments,
available. An understanding of
these
estimates and assumptions underlying
accounting policies is essential in order to understand
our reported consolidated results of operations and
financial condition.
the
significant
The following is a discussion of the above-
estimates.
mentioned
Management has discussed
these significant
accounting estimates with the E&A Committee of the
Board.
accounting
Fair Value Measurements
We carry certain of our financial assets and
liabilities at fair value in our consolidated financial
statements on a recurring basis, including trading
account assets and liabilities, AFS debt securities,
certain equity securities and various
types of
derivative financial instruments.
liabilities are
Changes in the fair value of these financial
assets and
recorded either as
components of our consolidated statement of income
or as components of other comprehensive income
in our consolidated
within shareholders' equity
statement of condition. In addition to those financial
assets and liabilities that we carry at fair value in our
consolidated financial statements on a recurring
basis, we estimate the fair values of other financial
assets and liabilities that we carry at amortized cost in
our consolidated statement of condition, and we
disclose these fair value estimates in the notes to our
consolidated financial statements. We estimate the
fair values of these financial assets and liabilities
using the definition of fair value described below.
Additional information with respect to the assets and
liabilities carried by us at fair value on a recurring
basis is provided in Note 2 to the consolidated
financial statements in this Form 10-K.
liability
for an asset or
U.S. GAAP defines fair value as the price that
would be received to sell an asset or paid to transfer
a liability in the principal or most advantageous
in an orderly
market
transaction between market participants on
the
measurement date. When we measure fair value for
our financial assets and liabilities, we consider the
principal or the most advantageous market in which
we would transact; we also consider assumptions that
market participants would use when pricing the asset
or liability. When possible, we look to active and
in active markets, we
observable markets to measure the fair value of
identical, or similar, financial assets and liabilities.
When identical financial assets and liabilities are not
traded
to market-
observable data for similar assets and liabilities. In
some instances, certain assets and liabilities are not
actively traded in observable markets; as a result, we
use alternate valuation techniques to measure their
fair value.
look
We categorize the financial assets and liabilities
that we carry at fair value in our consolidated
statement of condition on a recurring basis based on
U.S. GAAP's prescribed
three-level valuation
hierarchy. The hierarchy gives the highest priority to
quoted prices in active markets for identical assets or
liabilities (level 1) and the lowest priority to valuation
methods using significant unobservable inputs (level
3).
With respect
instruments, we
to derivative
evaluate the fair value impact of the credit risk of our
counterparties. We consider such factors as the
market-based probability of default by our
counterparties, and our current and expected
remaining
future net exposures by
potential
maturities,
appropriate
determining
measurements of fair value.
the
in
Allowance for Credit Losses
In January 2020, we adopted ASC 326, which
replaces the incurred loss methodology with an
expected
loss methodology. We maintain an
allowance for credit losses to support our on-balance
sheet credit exposures, including financial assets held
at amortized cost. We also maintain an allowance for
unfunded commitments and
to
support our off-balance credit exposure. The two
components together represent the allowance for
credit losses.
letters of credit
Determining
the appropriateness of
the
allowance is complex and requires judgment by
management about the effect of matters that are
inherently uncertain. In future periods, factors and
forecasts then prevailing may result in significant
changes in the allowance for credit losses in those
future periods. We estimate credit losses over the
contractual life of the financial asset while factoring in
prepayment activity where supported by data over a
three year reasonable and supportable
forecast
period. We utilize a baseline, upside and downside
scenario which are applied based on a probability
weighting, in order to better reflect management’s
expectation of expected credit losses given existing
market conditions and the changes in the economic
environment. The multiple scenarios are based on a
three year horizon (or less depending on contractual
maturity) and then revert linearly over a two year
period to a ten-year historical average thereafter. The
term excludes expected extensions,
contractual
State Street Corporation | 124
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
renewals and modifications, but includes prepayment
assumptions where applicable.
Additional information about our allowance for
credit losses is provided in Note 4 to the consolidated
financial statements in this Form 10-K.
Goodwill and Other Intangible Assets
assets,
primarily
intangible
Goodwill represents the excess of the cost of an
acquisition over the fair value of the net tangible and
other intangible assets acquired at the acquisition
date. Other intangible assets represent purchased
client
long-lived
relationships, core deposit intangible assets and
technology that can be distinguished from goodwill
because of contractual rights or because the asset
can be exchanged on its own or in combination with a
related contract, asset or liability. Other intangible
assets are initially measured at their acquisition date
fair value,
the determination of which requires
management judgment. Goodwill is not amortized,
while other intangible assets are amortized over their
estimated useful lives.
a
by
factors
regulator;
that may
impairment
Management reviews goodwill for impairment
annually or more frequently if circumstances arise or
events occur that indicate an impairment of the
carrying amount may exist. We begin our review by
first assessing qualitative
to determine
whether it is more likely than not that the fair value of
a reporting unit is less than its carrying amount.
Events
include:
indicate
significant or adverse changes in the business,
economic or political climate; an adverse action or
assessment
unanticipated
competition; and a more-likely-than-not expectation
that we will sell or otherwise dispose of a business to
which the goodwill or other intangible assets relate. If
we conclude from the qualitative assessment of
goodwill impairment that it is more likely than not that
a reporting unit’s fair value is greater than its carrying
amount, quantitative tests are not required. However,
if we determine it is more likely than not that a
reporting unit’s fair value is less than its carrying
amount, then we complete a quantitative assessment
to determine if there is goodwill impairment. We may
elect to bypass the qualitative assessment and
complete a quantitative assessment in any given
year.
In 2020, we assessed goodwill for impairment
using a qualitative assessment. Based on our
evaluation of the qualitative factors noted above, we
determined that it was more likely than not that the
fair value of each of the reporting units exceeded its
respective carrying amount. We determined there
was no goodwill impairment in 2020.
Other intangible assets are supported by the
future cash flows that are directly associated with and
expected to arise as a direct result of the use of the
intangible asset, less any costs associated with the
impairment
intangible asset’s eventual disposition. We evaluate
other intangible assets for impairment at the lowest
level for which there are identifiable cash flows that
are largely independent of the cash flows from other
groups of assets using the following process. First,
we routinely assess whether impairment indicators
indicators are
are present. When
identified as being present, we compare
the
estimated future net undiscounted cash flows of the
intangible asset with its carrying value. If the future
net undiscounted cash flows are greater than the
carrying value, then there is no impairment, but if the
intangible asset's net undiscounted cash flows are
less than its carrying value, we are required to
calculate impairment. An impairment is recognized by
writing the intangible asset down to its fair value. We
evaluate intangible assets for indicators of impairment
on a quarterly basis. There were no impairments
taken on other intangible assets in 2020.
Additional information about goodwill and other
intangible assets, including information by line of
business, is provided in Note 5 to the consolidated
financial statements in this Form 10-K.
Contingencies
Information on significant estimates and
judgments related with establishing litigation reserves
is discussed in Note 13 of the consolidated financial
statements in this Form 10-K.
RECENT ACCOUNTING DEVELOPMENTS
Information with respect to recent accounting
the
developments
consolidated financial statements in this Form 10-K.
is provided
in Note 1
to
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The information provided under “Market Risk
Management”
in our
Management's Discussion and Analysis in this Form
10-K, is incorporated by reference herein.
"Financial Condition"
in
ITEM
SUPPLEMENTARY DATA
8.
FINANCIAL STATEMENTS AND
Additional information about restrictions on the
transfer of funds from State Street Bank to the Parent
Company is provided under "Related Stockholder
Matters" in Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity Securities, and under "Capital" in “Financial
Condition” in our Management’s Discussion and
Analysis in this Form 10-K.
State Street Corporation | 125
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of State Street Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of condition of State Street Corporation (the
“Corporation”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December
31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation
at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Corporation's internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) and our report dated February 19, 2021 expressed an unqualified
opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility
is to express an opinion on the Corporation’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
State Street Corporation | 126
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to
which it relates.
Description of the
Matter
How We Addressed
the Matter in Our
Audit
Servicing Fee Revenue
Revenue recognized by the Corporation as servicing fees was $5.2 billion for the year
ended December 31, 2020. As disclosed in Notes 24 and 25 of the consolidated financial
statements, servicing fee revenue involves revenue streams from various products which
include custody, product accounting, daily pricing and administration, master trust and
master custody, depotbank services (a fund oversight role created by non-US regulation),
record-keeping, cash management, investment manager and alternative investment
manager operations outsourcing. The Corporation’s servicing fee revenue involves a
significant volume of contracts and transactions and is sourced from multiple systems and
processes across different business teams and geographies.
Auditing servicing fee revenue was complex and involved significant audit effort due to the
non-standard nature of the Corporation’s contracts, the volume of contracts, the impact of
contract renegotiations on accrued servicing fees, and the number of different processes
used to recognize revenue.
We identified and obtained an understanding of the processes used by the Corporation to
recognize revenue transactions. We evaluated the design and tested the operating
effectiveness of controls over the Corporation’s processes for recognizing servicing fee
revenue, including, among others, controls over the review of client contracts, the
calculations of the key drivers of revenue (e.g., assets under custody) and the flow of this
information from the business teams negotiating contract amendments to the department
accruing revenue.
Among other procedures, to test servicing fee revenue, we selected a sample of client
contracts and analyzed the contracts to determine whether terms that may have an impact
on revenue recognition, including performance obligations and specified fees, were
identified and properly considered in the evaluation of the accounting for the contracts. In
addition, we reperformed the calculation of revenue for a sample of revenue transactions.
We also agreed the amounts recognized to source documents and tested the
mathematical accuracy of the recorded revenue. We inquired of the business teams
involved in contract negotiations for a selection of clients to assess the state of those
negotiations and any effect on accrued servicing fees. We obtained third party confirmation
of the client balance due for a sample of servicing fees receivable.
/s/ Ernst & Young LLP
We have served as the Corporation's auditor since 1972.
Boston, Massachusetts
February 19, 2021
State Street Corporation | 127
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share amounts)
2020
2019
2018
Years Ended December 31,
Fee revenue:
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income:
Interest income
Interest expense
Net interest income
Other income:
Gains (losses) from sales of available-for-sale securities, net
Other income
Total other income
Total revenue
Provision for credit losses
Expenses:
Compensation and employee benefits
Information systems and communications
Transaction processing services
Occupancy
Acquisition and restructuring costs
Amortization of other intangible assets
Other
Total expenses
Income before income tax expense
Income tax expense
Net income
Net income available to common shareholders
Earnings per common share:
Basic
Diluted
Average common shares outstanding (in thousands):
Basic
Diluted
$
5,167 $
5,074 $
1,880
1,363
356
733
9,499
2,575
375
2,200
4
—
4
11,703
88
4,450
1,550
978
489
50
234
965
8,716
2,899
479
1,824
1,058
471
720
9,147
3,941
1,375
2,566
(1)
44
43
11,756
10
4,541
1,465
983
470
77
236
1,262
9,034
2,712
470
$
$
$
2,420 $
2,257 $
2,242 $
2,009 $
6.40 $
6.32
5.43 $
5.38
352,865
357,106
369,911
373,666
Cash dividends declared per common share
$
2.08 $
1.98 $
5,421
1,899
1,153
543
438
9,454
3,662
991
2,671
9
(3)
6
12,131
15
4,780
1,324
985
500
24
226
1,176
9,015
3,101
508
2,593
2,404
6.46
6.39
371,983
376,476
1.78
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 128
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In millions)
Net income
Other comprehensive income (loss), net of related taxes:
Foreign currency translation, net of related taxes of ($40), $2 and ($8),
respectively
Net unrealized gains (losses) on available-for-sale securities, net of
reclassification adjustment and net of related taxes of $165, $212 and
($134), respectively
Net unrealized gains (losses) on available-for-sale securities designated
in fair value hedges, net of related taxes of $1, $6 and $9, respectively
Non-credit impairment on held-to-maturity securities previously identified
under ASC 320, net of related taxes of zero, $1 and $2, respectively (1)
Net unrealized gains (losses) on cash flow hedges, net of related taxes
of $46, $9 and ($17), respectively
Net unrealized gains (losses) on retirement plans, net of related taxes of
$3, ($8) and $8, respectively
Other comprehensive income (loss)
Total comprehensive income
Years Ended December 31,
2020
2019
2018
$
2,420 $
2,242 $
2,593
488
436
3
—
127
9
1,063
(9)
(67)
545
(302)
18
1
25
(16)
564
24
4
(33)
27
(347)
2,246
$
3,483 $
2,806 $
(1) We adopted ASU 2016-13, Financial Instruments - Credit Losses (ASC 326) : Measurement of Credit Losses on Financial Instruments, on January 1, 2020. Non-
credit impairment on HTM securities was previously recognized under ASC 320. Please refer to Note 1 for additional information.
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 129
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
December 31, 2020
December 31, 2019
(Dollars in millions, except per share amounts)
Assets:
Cash and due from banks
Interest-bearing deposits with banks
Securities purchased under resale agreements
Trading account assets
Investment securities available-for-sale
Investment securities held-to-maturity purchased under money market liquidity
facility (less allowance for credit losses of $1) (fair value of $3,304)
Investment securities held-to-maturity (less allowance for credit losses of $2)
(fair value of $50,003 and $42,157)
Loans (less allowance for credit losses on loans of $122 and $74)
Premises and equipment (net of accumulated depreciation of $4,825 and
$4,367)
Accrued interest and fees receivable
Goodwill
Other intangible assets
Other assets
Total assets
Liabilities:
Deposits:
Non-interest-bearing
Interest-bearing - U.S.
Interest-bearing - non-U.S.
Total deposits
Securities sold under repurchase agreements
Short term borrowings under money market liquidity facility
Other short-term borrowings
Accrued expenses and other liabilities
Long-term debt
Total liabilities
Commitments, guarantees and contingencies (Notes 12 and 13)
Shareholders’ equity:
Preferred stock, no par, 3,500,000 shares authorized:
Series C, 5,000 shares issued and outstanding
Series D, 7,500 shares issued and outstanding
Series F, 7,500 shares issued and outstanding
Series G, 5,000 shares issued and outstanding
Series H, 5,000 shares issued and outstanding
Common stock, $1 par, 750,000,000 shares authorized:
503,879,642 and 503,879,642 shares issued, and 353,156,279 and
357,389,416 shares outstanding
Surplus
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost (150,723,363 and 146,490,226 shares)
Total shareholders’ equity
Total liabilities and shareholders' equity
$
3,467 $
$
$
116,960
3,106
815
59,048
3,299
48,929
27,803
2,154
3,105
7,683
1,827
36,510
314,706 $
49,439 $
102,331
88,028
239,798
3,413
3,302
685
27,503
13,805
288,506
—
742
742
493
494
504
10,205
23,442
187
(10,609)
26,200
$
314,706 $
3,302
68,965
1,487
914
53,815
—
41,782
26,235
2,282
3,231
7,556
2,030
34,011
245,610
34,031
77,504
70,337
181,872
1,102
—
839
24,857
12,509
221,179
491
742
742
493
494
504
10,132
21,918
(876)
(10,209)
24,431
245,610
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 130
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in millions, except per
share amounts, shares
in thousands)
Preferred
Stock
Shares
Amount
Surplus
Common Stock
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury Stock
Shares
Amount
Total
Balance at December 31, 2017
$ 3,196
503,880 $
504 $ 9,799 $ 18,809 $
(1,009)
136,230 $ (9,029) $ 22,270
Net income
Other comprehensive income
(loss)
Preferred stock issued
Common stock issued
Cash dividends declared:
Common stock - $1.78 per
share
Preferred stock
Common stock acquired
Common stock awards exercised
Other
494
2,593
(347)
2,593
(347)
494
586
(13,244)
564
1,150
(665)
(188)
4
44
(368)
3,324
(2,389)
12
(350)
101
(1)
(665)
(188)
(350)
145
(365)
Balance at December 31, 2018
$ 3,690
503,880 $
504 $ 10,061 $ 20,553 $
(1,356)
123,933 $ (8,715) $ 24,737
Reclassification of certain tax
effects(1)
Net income
Other comprehensive income
(loss)
Preferred stock redeemed
(728)
Cash dividends declared:
Common stock - $1.98 per
share
Preferred stock
Common stock acquired
Common stock awards exercised
Other
(84)
564
84
2,242
(22)
(728)
(210)
(1)
95
(24)
—
2,242
564
(750)
(728)
(210)
24,884
(1,600)
(1,600)
(2,295)
(32)
103
3
198
(22)
Balance at December 31, 2019
$ 2,962
503,880 $
504 $ 10,132 $ 21,918 $
(876)
146,490 $ (10,209) $ 24,431
Net income
Other comprehensive income
(loss)
Preferred stock redeemed
(491)
Cash dividends declared:
Common stock - $2.08 per share
Preferred stock
Common stock acquired
Common stock awards exercised
Other
2,420
(9)
(734)
(152)
(1)
72
1
1,063
2,420
1,063
(500)
(734)
(152)
(500)
172
6,464
(2,233)
(500)
100
2
—
—
Balance at December 31, 2020
$ 2,471
503,880 $
504 $ 10,205 $ 23,442 $
187
150,723 $ (10,609) $ 26,200
(1) Represents the reclassification from accumulated other comprehensive income into retained earnings as a result of our adoption of ASU 2018-02 - Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income in the first quarter of 2019.
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 131
STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax (benefit)
Amortization of other intangible assets
Other non-cash adjustments for depreciation, amortization and accretion, net
Losses (gains) related to investment securities, net
Provision for credit losses
Change in trading account assets, net
Change in accrued interest and fees receivable, net
Change in collateral deposits, net
Change in unrealized losses (gains) on foreign exchange derivatives, net
Change in other assets, net
Change in accrued expenses and other liabilities, net
Other, net
Net cash provided by operating activities
Investing Activities:
Net (increase) decrease in interest-bearing deposits with banks
Net (increase) decrease in securities purchased under resale agreements
Proceeds from sales of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Purchases of available-for-sale securities
Purchases of held-to-maturity securities under the MMLF program
Proceeds from maturities of held-to-maturity securities under the MMLF program
Proceeds from maturities of held-to-maturity securities
Purchases of held-to-maturity securities
Sale of loans
Net (increase) in loans and leases
Business acquisitions, net of cash acquired
Purchases of equity investments and other long-term assets
Purchases of premises and equipment, net
Other, net
Net cash (used in) by investing activities
Financing Activities:
Net (decrease) increase in time deposits
Net increase (decrease) in all other deposits
Net increase (decrease) in securities sold under repurchase agreements
Net (decrease) increase in other short-term borrowings
Net increase in short-term borrowings under money market liquidity facility
Proceeds from issuance of long-term debt, net of issuance costs
Payments for long-term debt and obligations under finance leases
Payments for redemption of preferred stock
Proceeds from issuance of preferred stock, net of issuance costs
Proceeds from issuance of common stock, net of issuance costs
Repurchases of common stock
Repurchases of common stock for employee tax withholding
Payments for cash dividends
Net cash provided by (used in) financing activities
Net increase
Cash and due from banks at beginning of period
Cash and due from banks at end of period
Supplemental disclosure:
Interest paid
Income taxes paid, net
Years Ended December 31,
2020
2019
2018
$
2,420 $
2,242 $
2,593
(194)
234
1,276
(4)
88
99
127
(2,951)
3,652
(1,406)
(170)
361
3,532
(47,995)
(1,619)
2,645
23,644
(37,873)
(29,242)
25,984
15,179
(13,981)
324
(1,939)
—
(1,436)
(560)
1,335
(65,534)
(33,466)
91,391
2,311
(154)
3,302
2,489
(1,724)
(500)
—
—
(515)
(78)
(889)
62,167
165
3,302
(130)
236
1,101
1
10
(54)
(28)
287
2,034
(713)
294
410
5,690
4,075
3,192
5,642
20,407
(38,164)
—
—
10,390
(6,938)
131
(650)
(54)
(647)
(730)
720
(2,626)
(11,255)
12,767
20
(2,253)
—
1,495
(402)
(750)
—
—
(1,585)
(81)
(930)
(2,974)
90
3,212
$
$
3,467 $
3,302 $
375 $
403
1,382 $
510
(136)
226
977
(6)
15
233
26
7,326
(1,836)
(22)
394
385
10,175
(5,813)
(1,438)
26,082
14,645
(31,814)
—
—
6,296
(6,539)
278
(2,739)
(2,595)
(326)
(609)
76
(4,496)
6,673
(11,209)
(1,760)
1,948
—
995
(1,461)
—
495
1,150
(350)
(124)
(828)
(4,471)
1,208
2,004
3,212
981
549
The accompanying notes are an integral part of these consolidated financial statements.
State Street Corporation | 132
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting
Policies
Basis of Presentation
The accounting and financial reporting policies
of State Street Corporation conform to U.S. GAAP.
State Street Corporation, the Parent Company, is a
financial holding company headquartered in Boston,
Massachusetts. Unless otherwise indicated or unless
the context requires otherwise, all references in these
notes to consolidated financial statements to “State
Street,” “we,” “us,” “our” or similar references mean
State Street Corporation and its subsidiaries on a
consolidated basis, including our principal banking
subsidiary, State Street Bank.
We have two lines of business:
cash management;
Investment Servicing provides a suite of related
products and services including: custody; product
accounting; daily pricing and administration; master
trust and master custody; depotbank services (a fund
regulation);
oversight
role created by non-U.S.
record-keeping;
foreign
exchange, brokerage and other trading services;
securities finance and enhanced custody products;
deposit and short-term investment facilities; loans and
lease financing; investment manager and alternative
investment manager
outsourcing;
performance, risk and compliance analytics; and
financial data management to support institutional
investors.
operations
is designed
technology offering which
Included within our Investment Servicing line of
business is CRD, which we acquired in October 2018.
The Charles River Investment Management solution
is a
to
automate and simplify the institutional investment
from portfolio
process across asset classes,
management and risk analytics through trading and
post-trade settlement, with integrated compliance and
managed data throughout. With the acquisition of
CRD, we took the first step in building our front-to-
back platform, State Street Alpha. Today our State
Street
portfolio
management, trading and execution, advanced data
aggregation, analytics and compliance tools, and
industry platforms and
integration with other
providers.
combines
platform
Alpha
Investment Management, through State Street
Global Advisors, provides a broad
range of
investment management strategies and products for
our clients. Our investment management strategies
and products span the risk/reward spectrum for
equity, fixed income and cash assets, including core
and enhanced indexing, multi-asset strategies, active
quantitative and fundamental active capabilities and
alternative
is
currently primarily weighted to indexed strategies. In
addition, we provide a breadth of services and
including environmental, social and
solutions,
investment strategies. Our AUM
governance investing, defined benefit and defined
contribution and Global Fiduciary Solutions (formerly
Outsourced Chief Investment Officer). State Street
Global Advisors is also a provider of ETFs, including
the SPDR® ETF brand. While management fees are
primarily determined by the values of AUM and the
investment strategies employed, management fees
reflect other factors as well, including the benchmarks
specified in the respective management agreements
related to performance fees.
Consolidation
Our consolidated financial statements include
the accounts of the Parent Company and its majority-
and wholly-owned
controlled
and
subsidiaries, including State Street Bank. All material
inter-company transactions and balances have been
eliminated. Certain previously reported amounts have
been
to current-year
presentation.
to conform
reclassified
otherwise
We consolidate subsidiaries
in which we
exercise control.
in unconsolidated
Investments
subsidiaries, recorded in other assets, generally are
accounted for under the equity method of accounting
if we have the ability to exercise significant influence
over the operations of the investee. For investments
accounted for under the equity method, our share of
income or loss is recorded in software and processing
fees
income.
Investments not meeting the criteria for equity-
method treatment are measured at fair value through
earnings, except for investments where a fair market
value is not readily available, which are accounted for
under the cost method of accounting.
in our consolidated statement of
Use of Estimates
The preparation of consolidated
financial
statements in conformity with U.S. GAAP requires
management to make estimates and assumptions in
the application of certain of our significant accounting
the reported
policies
amounts of assets, liabilities, equity, revenue and
expenses. As a result of unanticipated events or
circumstances, actual results could differ from those
estimates.
that may materially affect
Foreign Currency Translation
The assets and liabilities of our operations with
functional currencies other than the U.S. dollar are
translated at month-end exchange rates, and revenue
and expenses are
that
approximate average monthly exchange rates. Gains
or losses from the translation of the net assets of
subsidiaries with functional currencies other than the
U.S. dollar, net of related taxes, are recorded in
AOCI, a component of shareholders’ equity.
translated at
rates
State Street Corporation | 133
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
For purposes of the consolidated statement of
cash flows, cash and cash equivalents are defined as
cash and due from banks.
Interest-Bearing Deposits with Banks
Interest-bearing deposits with banks generally
consist of highly
investments
liquid, short-term
maintained at the Federal Reserve Bank and other
non-U.S. central banks with original maturities at the
time of purchase of one month or less.
Securities Purchased Under Resale Agreements
and
Sold Under Repurchase
Agreements
Securities
financing
Securities purchased under resale agreements
and sold under repurchase agreements are treated
as collateralized
transactions, and are
recorded in our consolidated statement of condition at
the securities will be
the amounts at which
subsequently resold or repurchased, plus accrued
interest. Our policy is to take possession or control of
securities underlying
resale agreements either
directly or through agent banks, allowing borrowers
the right of collateral substitution and/or short-notice
termination. We revalue these securities daily to
determine if additional collateral is necessary from the
borrower to protect us against credit exposure. We
can use these securities as collateral for repurchase
agreements.
securities
repurchase
under
sold
For
agreements
investment
collateralized by our
securities portfolio, the dollar value of the securities
remains in investment securities in our consolidated
statement of condition. Where a master netting
agreement exists or both parties are members of a
common clearing organization, resale and repurchase
agreements with the same counterparty or clearing
house and maturity date are recorded on a net basis.
Fee and Net Interest Income
The majority of fees from investment servicing,
investment management, securities finance, trading
services and certain types of software and processing
fees are recorded in our consolidated statement of
income based on the consideration specified in
contracts with our customers, and excludes taxes
collected from customers subsequently remitted to
governmental authorities. We recognize revenue as
the services are performed or at a point in time
depending on the nature of the services provided.
Payments made to third party service providers are
generally recognized on a gross basis when we
control those services and are deemed to be the
principal. Additional information about revenue from
contracts with customers is provided in Note 25.
Interest income on interest-earning assets and
interest expense on interest-bearing liabilities are
recorded in our consolidated statement of income as
components of NII, and are generally based on the
effective yield of the related financial asset or liability.
Other Significant Policies
The following table identifies our other significant
accounting policies and the note and page where a
detailed description of each policy can be found:
Fair Value
Investment Securities
Loans
Goodwill and Other Intangible Assets
Derivative Financial Instruments
Offsetting Arrangements
Contingencies
Variable Interest Entities
Equity-Based Compensation
Income Taxes
Earnings Per Common Share
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Revenue from Contracts with Customers
Note
2
3
4
5
10
11
13
14
18
22
23
25
Page
Page
Page
Page
Page
Page
Page
Page
Page
Page
Page
Page
135
143
149
154
158
163
167
169
176
180
181
184
State Street Corporation | 134
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Developments
Relevant standards that were adopted in 2020:
the
incurred
including
In January 2020, we adopted ASU 2016-13,
Financial Instruments - Credit Losses (ASC 326):
Measurement of Credit Losses on Financial
Instruments, which
loss
replaces
methodology with an expected loss methodology that
is referred to as CECL methodology. This standard
requires immediate recognition of expected credit
losses for certain financial assets and off-balance
trade and other
sheet commitments,
receivables, loans and commitments, held-to-maturity
debt securities, and other financial assets held at
amortized cost at the reporting date, to be measured
based on historical experience, current conditions,
and reasonable and supportable forecasts. Credit
losses on available-for-sale securities are recorded
as an allowance against the amortized cost basis of
the security, limited to the amount by which the
security’s amortized cost basis exceeds the fair value,
and reversal of impairment losses are allowed when
the credit of the issuer improves.
ASC 326 was adopted using a modified
retrospective method of transition for all financial
assets measured at amortized cost and off balance
sheet commitments, which requires the impact of
applying the standard on prior periods to be reflected
in opening retained earnings upon adoption. Results
for reporting periods beginning on or after January 1,
2020 are presented under the CECL methodology in
ASC 326, while prior period amounts are reported in
accordance with previously applicable GAAP. The
impact of
the
consolidated financial statements was an increase in
the allowance for credit losses and a decrease in
retained earnings of $3 million primarily arising from:
to ASC 326 on
transitioning
• An increase of $1 million in the allowance for
credit losses related to loans and other financial
assets held at amortized cost.
• An increase of $2 million in the allowance for
sheet
to
off-balance
related
losses
credit
commitments.
In January 2020, we adopted the remaining
provisions of ASU 2018-13 - Fair Value Measurement
(Topic 820): Disclosure Framework- Changes to the
Disclosure Requirements for Fair Value, specifically
the provisions of the standard that add disclosures.
We previously adopted the provisions of the standard
that eliminated or amended disclosures as of
December 31, 2018. There were no material impacts
to the disclosures as a result of the adoption.
In January 2020, we adopted ASU 2017-04,
Intangibles-Goodwill
350):
and Other
Simplifying the Test for Goodwill Impairment. There
were no material impacts to our financial statements
as a result of the adoption.
(Topic
In January 2020, we adopted ASU 2018-15,
Intangibles-Goodwill and Other-Internal Use Software
(Subtopic 350-40): Customer's Accounting
for
Implementation Costs Incurred in a Cloud Computing
Arrangement. There were no material impacts to our
financial statements as a result of the adoption.
ASU 2020-04, Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting is effective as of
March 12, 2020. The guidance provides temporary
optional expedients and exceptions to the existing
guidance in U.S. GAAP on contract modifications and
hedge accounting in relation to the transition from
LIBOR and other interbank offered rates to alternative
reference rates. The guidance also allows a one-time
election to sell and/or reclassify to AFS or trading
HTM debt securities that reference an interest rate
affected by reference rate reform. We expect to elect
certain of the optional expedients and are evaluating
the one-time election to sell/transfer HTM securities
impacted by reference rate reform.
We continue to evaluate accounting standards
that were recently issued but not yet adopted as of
December 31, 2020, but none are expected to have a
material impact to our financial statements.
Note 2. Fair Value
Fair Value Measurements
We carry trading account assets and liabilities,
AFS debt securities, certain equity securities and
various types of derivative financial instruments, at
fair value in our consolidated statement of condition
on a recurring basis. Changes in the fair values of
these financial assets and liabilities are recorded
either as components of our consolidated statement
of
income or as components of AOCI within
shareholders' equity in our consolidated statement of
condition.
We measure fair value for the above-described
financial assets and liabilities in conformity with U.S.
GAAP that governs the measurement of the fair value
of financial instruments. Management believes that its
valuation techniques and underlying assumptions
used to measure fair value conform to the provisions
of U.S. GAAP. We categorize the financial assets and
liabilities that we carry at fair value based on a
three-level valuation hierarchy. The
prescribed
hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (level
1) and the lowest priority to valuation methods using
significant unobservable inputs (level 3). If the inputs
used to measure a financial asset or liability cross
different levels of the hierarchy, categorization is
based on the lowest-level input that is significant to
the
fair-value measurement. Management's
assessment of the significance of a particular input to
State Street Corporation | 135
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the overall fair-value measurement of a financial
asset or liability requires judgment, and considers
factors specific to that asset or liability. The three
levels of the valuation hierarchy are described below.
Level 1. Financial assets and liabilities with
values based on unadjusted quoted prices
for
identical assets or liabilities in an active market. Our
level 1 financial assets and liabilities primarily include
positions in U.S. government securities and highly
liquid U.S. and non-U.S. government fixed-income
securities. Our level 1 financial assets also include
actively traded exchange- traded equity securities.
Level 2. Financial assets and liabilities with
values based on quoted prices for similar assets and
liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or
indirectly, for substantially the full term of the asset or
liability. Level 2 inputs include the following:
▪ Quoted prices for similar assets or
liabilities in active markets;
▪ Quoted prices for identical or similar
assets or liabilities in non-active markets;
▪ Pricing models whose
inputs are
observable for substantially the full term of
the asset or liability; and
▪ Pricing models whose inputs are
derived principally from, or corroborated by,
observable market
through
correlation or other means for substantially
the full term of the asset or liability.
information
Our
level 2
financial assets and
liabilities
primarily include non-U.S. debt securities carried in
trading account assets and various types of fixed-
income AFS investment securities, as well as various
types of foreign exchange and interest rate derivative
instruments.
used in our trading activities, for which fair value is
measured using discounted cash-flow techniques,
with inputs consisting of observable spot and forward
points, as well as observable interest rate curves.
With respect to derivative instruments, we evaluate
the impact on valuation of the credit risk of our
counterparties. We consider factors such as the
likelihood of default by our counterparties, our current
and potential future net exposures and remaining
maturities in determining the fair value. Valuation
adjustments associated with derivative instruments
were not material to those instruments for the years
ended December 31, 2020 and 2019.
inputs
Level 3. Financial assets and liabilities with
values based on prices or valuation techniques that
require inputs that are both unobservable in the
market and significant to the overall measurement of
fair value. These
reflect management's
judgment about the assumptions that a market
participant would use in pricing the financial asset or
the best available
liability, and are based on
information, some of which may be
internally
developed. The following provides a more detailed
discussion of our financial assets and liabilities that
we may categorize in level 3 and the related valuation
methodology.
• The fair value of our investment
securities categorized in level 3 is
measured using information obtained from
third-party sources,
typically non-binding
broker/dealer quotes, or through the use of
models.
internally-developed
Management
its
methodologies used to measure fair value
and has considered the level of observable
to
market
categorize the securities in level 2.
information
insufficient
evaluated
pricing
to be
has
Fair value for our AFS investment securities
categorized in level 2 is measured primarily using
information obtained from independent third parties.
This third-party information is subject to review by
management as part of a validation process, which
includes obtaining an understanding of the underlying
assumptions and the level of market participant
information used to support those assumptions. In
addition, management
significant
assumptions used by third parties to available market
information. Such information may include known
trades or, to the extent that trading activity is limited,
comparisons
information
pertaining to credit expectations, execution prices and
the timing of cash flows and, where information is
available, back- testing.
to market
compares
research
Derivative instruments categorized in level 2
predominantly represent foreign exchange contracts
• The
fair value of certain
foreign
exchange contracts, primarily options,
is
measured using an option-pricing model.
Because of a limited number of observable
transactions, certain model inputs are not
observable, such as implied volatility surface,
from observable market
but are derived
information.
Our level 3 financial assets and liabilities are
similar in structure and profile to our level 1 and level
2 financial instruments, but they trade in less liquid
markets, and the measurement of their fair value is
inherently less observable.
The following tables present information with
respect to our financial assets and liabilities carried at
fair value in our consolidated statement of condition
on a recurring basis as of the dates indicated:
State Street Corporation | 136
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions)
Assets:
Trading account assets:
U.S. government securities
Non-U.S. government securities
Other
Total trading account assets
Available-for-sale investment securities:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Asset-backed securities:
Student loans
Credit cards
Collateralized loan obligations
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other(2)
Total non-U.S. debt securities
State and political subdivisions
Collateralized mortgage obligations
Other U.S. debt securities
Total available-for-sale investment
securities
Other assets:
Derivative instruments:
Foreign exchange contracts
Interest rate contracts
Total derivative instruments
Other
Total assets carried at fair value
Liabilities:
Accrued expenses and other liabilities:
Trading account liabilities:
Other
Derivative instruments:
Foreign exchange contracts
Interest rate contracts
Other derivative contracts
Total derivative instruments
Total liabilities carried at fair value
Fair Value Measurements on a Recurring Basis
As of December 31, 2020
Quoted Market
Prices in Active
Markets
(Level 1)
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
Impact of
Netting(1)
Total Net
Carrying Value
in Consolidated
Statement of
Condition
$
$
$
$
40
—
17
57
6,575
—
6,575
—
—
—
—
—
—
—
—
—
—
—
—
6,575
—
1
1
—
$
— $
239
519
758
—
14,305
14,305
314
90
2,952
3,356
1,996
2,291
12,539
12,903
29,729
1,548
78
3,443
52,459
25,941
—
25,941
525
$
—
—
—
—
—
—
—
—
—
14
14
—
—
—
—
—
—
—
—
14
2 $ (20,140)
—
2
—
—
(20,140)
—
6,633
$
79,683 $
16 $ (20,140) $
40
239
536
815
6,575
14,305
20,880
314
90
2,966
3,370
1,996
2,291
12,539
12,903
29,729
1,548
78
3,443
59,048
5,803
1
5,804
525
66,192
4
$
— $
— $
— $
4
1
—
—
1
5
25,925
42
157
26,124
1
—
—
1
(15,558)
—
—
(15,558)
$
26,124 $
1 $ (15,558) $
10,369
42
157
10,568
10,572
(1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between us and the
counterparty. Netting also reflects asset and liability reductions of $5.87 billion and $1.29 billion, respectively, for cash collateral received from and provided to
derivative counterparties.
(2) As of December 31, 2020, the fair value of other non-U.S. debt securities included $9.55 billion of supranational and non-U.S. agency bonds, $1.88 billion of
corporate bonds and $0.47 billion of covered bonds.
State Street Corporation | 137
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements on a Recurring Basis
Quoted Market
Prices in Active
Markets
(Level 1)
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
As of December 31, 2019
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
Total Net
Carrying Value
in Consolidated
Statement of
Condition
Impact of
Netting(1)
$
34 $
— $
146
21
201
3,487
—
3,487
—
—
—
—
—
—
—
—
—
—
—
—
3,487
—
—
—
—
173
540
713
—
17,838
17,838
531
89
—
620
1,980
1,292
12,373
8,613
24,258
1,783
104
2,973
47,576
15,136
8
15,144
504
$
—
—
—
—
—
—
—
—
—
1,820
1,820
—
887
—
45
932
—
—
—
2,752
4 $ (10,391)
—
4
—
(4)
(10,395)
—
3,688 $
63,937 $
2,756 $ (10,395) $
34
319
561
914
3,487
17,838
21,325
531
89
1,820
2,440
1,980
2,179
12,373
8,658
25,190
1,783
104
2,973
53,815
4,749
4
4,753
504
59,986
(In millions)
Assets:
Trading account assets:
U.S. government securities
Non-U.S. government securities
Other
Total trading account assets
Available-for-sale investment securities:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Asset-backed securities:
Student loans
Credit cards
Collateralized loan obligations
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other(2)
Total non-U.S. debt securities
State and political subdivisions
Collateralized mortgage obligations
Other U.S. debt securities
Total available-for-sale investment
securities
Other assets:
Derivative instruments:
Foreign exchange contracts
Interest rate contracts
Total derivative instruments
Other
Total assets carried at fair value
Liabilities:
Accrued expenses and other liabilities:
Trading account liabilities:
Other
Derivative instruments:
Foreign exchange contracts
Interest rate contracts
Other derivative contracts
Total derivative instruments
$
$
5 $
— $
— $
— $
5
3
6
—
9
15,144
43
182
15,369
15,369 $
3
—
—
3
(8,918)
(4)
—
(8,922)
3 $
(8,922) $
6,232
45
182
6,459
6,464
Total liabilities carried at fair value
$
14 $
(1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between us and the
counterparty. Netting also reflects asset and liability reductions of $2.31 billion and $0.84 billion, respectively, for cash collateral received from and provided to
derivative counterparties.
(2) As of December 31, 2019, the fair value of other non-U.S. debt securities included $5.50 billion of supranational and non-U.S. agency bonds, $1.78 billion of
corporate bonds and $0.68 billion of covered bonds.
State Street Corporation | 138
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present activity related to our level 3 financial assets during the years ended December
31, 2020 and 2019, respectively. Transfers into and out of level 3 are reported as of the beginning of the period
presented. During the years ended December 31, 2020 and 2019, transfers into level 3 were primarily related to
collateralized loan obligations, for which fair value was measured using information obtained from third party
sources, including non-binding broker/dealer quotes. During the years ended December 31, 2020 and 2019,
transfers out of level 3 were mainly related to collateralized loan obligations, certain MBS and non-U.S. debt
securities, for which fair value was measured using prices based on observable market information.
Fair Value Measurements Using Significant Unobservable Inputs
Year Ended December 31, 2020
Total Realized and
Unrealized Gains (Losses)
Fair Value
as of
December 31,
2019
Recorded
in
Revenue(1)
Recorded in
Other
Comprehensive
Income(1)
Purchases
Sales
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Fair Value
as of
December
31, 2020(1)
Change in
Unrealized
Gains
(Losses)
Related to
Financial
Instruments
Held as of
December 31,
2020
(In millions)
Assets:
Available-for-sale Investment
securities:
Asset-backed securities:
Collateralized loan
obligations
Non-U.S. debt securities:
Asset-backed securities
Other
Total non-U.S. debt securities
Total Available-for-sale
investment securities
Other assets:
Derivative instruments:
Foreign exchange
contracts
Total derivative instruments
Total assets carried at fair
value
$
1,820
$
—
$
(10) $
864
$
(95) $
(77) $
50
$
(2,538) $
Total asset-backed securities
1,820
(10)
864
(95)
(77)
50
(2,538)
1
—
1
—
—
—
(5)
—
(5)
—
—
—
(918)
(47)
(965)
865
(95)
(82)
50
(3,503)
14
14
—
—
—
14
—
—
—
—
—
(6)
(6)
887
45
932
2,752
4
4
35
2
37
27
—
—
$
2,756
$
(6) $
27
$
870
$
(95) $
(83) $
50
$
(3,503) $
16
$
5
5
—
—
(1)
(1)
—
—
—
—
$
2
2
(3)
(3)
(3)
(1) Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized
gains (losses) on derivative instruments are included within foreign exchange trading services.
State Street Corporation | 139
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements Using Significant Unobservable Inputs
Year Ended December 31, 2019
Total Realized and
Unrealized Gains (Losses)
Fair Value
as of
December 31,
2018
Recorded
in
Revenue(1)
Recorded
in Other
Comprehensive
Income(1)
Purchases
Sales
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Fair Value
as of
December
31, 2019(1)
(In millions)
Assets:
Available-for-sale Investment
securities:
Change in
Unrealized
Gains
(Losses)
Related to
Financial
Instruments
Held as of
December 31,
2019
Mortgage-backed securities
$
—
$
—
$
—
$
123
$ —
$
—
$
—
$
(123) $
—
Asset-backed securities:
Collateralized loan
obligations
Other
Total asset-backed securities
Non-U.S. debt securities:
Asset-backed securities
Other
Total non-U.S. debt securities
State and political subdivisions
Collateralized mortgage
obligations
Total Available-for-sale
investment securities
Other assets:
Derivative instruments:
Foreign exchange contracts
Total derivative instruments
Total assets carried at fair
value
593
—
593
631
58
689
—
2
1,284
1
—
1
—
—
—
—
—
1
—
—
—
(9)
(1)
(10)
—
—
1,065
—
1,065
340
—
340
—
—
(10)
1,528
4
4
(15)
(15)
—
—
16
16
—
—
—
—
—
—
—
—
—
—
—
(342)
—
(342)
(36)
—
(36)
—
(2)
503
—
503
—
—
—
—
—
—
—
—
(39)
(12)
(51)
—
—
1,820
—
1,820
887
45
932
—
—
(380)
503
(174)
2,752
(1)
(1)
—
—
—
—
$
4
4
$
1,288
$
(14) $
(10) $
1,544
$ —
$
(381) $
503
$
(174) $
2,756
$
(11)
(11)
(11)
(1) Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized
gains (losses) on derivative instruments are included within foreign exchange trading services.
The following table presents quantitative information, as of the dates indicated, about the valuation techniques
and significant unobservable inputs used in the valuation of our level 3 financial assets and liabilities measured at
fair value on a recurring basis for which we use internally-developed pricing models. The significant unobservable
inputs for our level 3 financial assets and liabilities whose fair value is measured using pricing information from non-
binding broker/dealer quotes are not included in the table, as the specific inputs applied are not provided by the
broker/dealer.
(Dollars in millions)
Significant unobservable inputs readily available
to State Street:
Assets:
Derivative Instruments, foreign exchange contracts
Total
Liabilities:
Derivative instruments, foreign exchange contracts
Total
Quantitative Information about Level 3 Fair Value Measurements
Fair Value
Range
Weighted-Average
As of
December
31, 2020
As of
December
31, 2019
Valuation
Technique
Significant
Unobservable
Input(1)
As of December
31, 2020
As of
December
31, 2020
As of
December
31, 2019
$
$
$
$
2 $
2 $
1 $
1 $
4 Option model
Volatility
5.7 % -
10.3%
7.9 %
8.2 %
4
3 Option model
Volatility
6.6 % -
10.3%
7.7 %
7.0 %
3
(1) Significant changes in these unobservable inputs may result in significant changes in fair value measurement of the derivative instrument.
State Street Corporation | 140
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments Not Carried at Fair Value
Estimates of fair value for financial instruments not carried at fair value in our consolidated statement of
condition are generally subjective in nature, and are determined as of a specific point in time based on the
characteristics of the financial instruments and relevant market information. Disclosure of fair value estimates is not
required by U.S. GAAP for certain items, such as lease financing, equity- method investments, obligations for
pension and other post-retirement plans, premises and equipment, other intangible assets and income-tax assets
and liabilities. Accordingly, aggregate fair-value estimates presented do not purport to represent, and should not
be considered representative of, our underlying “market” or franchise value. In addition, because of potential
differences in methodologies and assumptions used to estimate fair values, our estimates of fair value should not be
compared to those of other financial institutions.
We use the following methods to estimate the fair values of our financial instruments:
•
For financial instruments that have quoted market prices, those quoted prices are used to
estimate fair value;
•
For financial instruments that have no defined maturity, have a remaining maturity of 180
days or less, or reprice frequently to a market rate, we assume that the fair value of these instruments
approximates their reported value, after taking into consideration any applicable credit risk; and
•
For financial instruments for which no quoted market prices are available, fair value is
estimated using information obtained from independent third parties, or by discounting the expected
cash flows using an estimated current market interest rate for the financial instrument.
The generally short duration of certain of our assets and liabilities results in a significant number of financial
instruments for which fair value equals or closely approximates the amount recorded in our consolidated statement
of condition. These financial instruments are reported in the following captions in our consolidated statement of
condition: cash and due from banks; interest-bearing deposits with banks; securities purchased under resale
agreements; accrued interest and fees receivable; deposits; securities sold under repurchase agreements; and
other short-term borrowings.
In addition, due to the relatively short duration of certain of our loans, we consider fair value for these loans to
approximate their reported value. The fair value of other types of loans, such as leveraged loans, commercial real
estate loans, purchased receivables and municipal loans is estimated using information obtained from independent
third parties or by discounting expected future cash flows using current rates at which similar loans would be made
to borrowers with similar credit ratings for the same remaining maturities. Commitments to lend have no reported
value because their terms are at prevailing market rates.
State Street Corporation | 141
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the reported amounts and estimated fair values of the financial assets and
liabilities not carried at fair value, as they would be categorized within the fair value hierarchy, as of the dates
indicated:
Reported
Amount
Estimated Fair
Value
Quoted Market
Prices in Active
Markets (Level 1)
Pricing Methods with
Significant
Observable Market
Inputs (Level 2)
Pricing Methods with
Significant
Unobservable Market
Inputs (Level 3)
Fair Value Hierarchy
(In millions)
December 31, 2020
Financial Assets:
Cash and due from banks
$
3,467 $
3,467 $
3,467 $
— $
Interest-bearing deposits with banks
Securities purchased under resale agreements
HTM securities purchased under the MMLF
program
Investment securities held-to-maturity
Net loans
Other(1)
Financial Liabilities:
Deposits:
Non-interest-bearing
Interest-bearing - U.S.
Interest-bearing - non-U.S.
Securities sold under repurchase agreements
Short-term borrowings under the MMLF
program
Other short-term borrowings
Long-term debt
Other(1)
116,960
3,106
3,299
48,929
27,803
4,753
116,960
3,106
3,304
50,003
27,884
4,753
—
—
—
6,115
—
—
116,960
3,106
3,304
43,888
25,668
4,753
$
49,439 $
49,439 $
— $
49,439 $
102,331
102,331
88,028
3,413
3,302
685
13,805
4,753
88,028
3,413
3,302
685
14,162
4,753
—
—
—
—
—
—
—
102,331
88,028
3,413
3,302
685
14,049
4,753
—
—
—
—
—
2,216
—
—
—
—
—
—
—
113
—
(1) Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.
Reported
Amount
Estimated Fair
Value
Quoted Market
Prices in Active
Markets (Level 1)
Pricing Methods with
Significant
Observable Market
Inputs (Level 2)
Pricing Methods with
Significant
Unobservable Market
Inputs (Level 3)
Fair Value Hierarchy
(In millions)
December 31, 2019
Financial Assets:
Cash and due from banks
$
3,302 $
3,302 $
3,302 $
— $
Interest-bearing deposits with banks
Securities purchased under resale agreements
Investment securities held-to-maturity
Net loans (excluding leases)(1)
Other(2)
Financial Liabilities:
Deposits:
Non-interest-bearing
Interest-bearing - U.S.
Interest-bearing - non-U.S.
Securities sold under repurchase agreements
Other short-term borrowings
Long-term debt
Other(2)
68,965
1,487
41,782
26,325
7,500
68,965
1,487
42,157
26,292
7,500
—
—
10,299
—
—
68,965
1,487
31,682
24,432
7,500
$
34,031 $
34,031 $
— $
34,031 $
77,504
70,337
1,102
839
12,509
7,500
77,504
70,337
1,102
839
12,770
7,500
—
—
—
—
—
—
77,504
70,337
1,102
839
12,621
7,500
—
—
—
176
1,860
—
—
—
—
—
—
149
—
(1) Includes $9 million of loans classified as held-for-sale that were measured at fair value as of December 31, 2019.
(2) Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.
State Street Corporation | 142
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment Securities
Investment securities held by us are classified as either trading account assets, AFS, HTM or equity securities
held at fair value at the time of purchase and reassessed periodically, based on management’s intent.
Generally, trading assets are debt and equity securities purchased in connection with our trading activities and,
as such, are expected to be sold in the near term. Our trading activities typically involve active and frequent buying
and selling with the objective of generating profits on short-term movements. AFS investment securities are those
securities that we intend to hold for an indefinite period of time. AFS investment securities include securities utilized
as part of our asset and liability management activities that may be sold in response to changes in interest rates,
prepayment risk, liquidity needs or other factors. HTM securities are debt securities that management has the intent
and the ability to hold to maturity.
Starting in the first quarter of 2020, we supported our clients' liquidity needs through the MMLF program,
purchasing a total of $29 billion of investment securities under that program, $3.3 billion of which remain
outstanding as of December 31, 2020.
Trading assets are carried at fair value. Both realized and unrealized gains and losses on trading assets are
recorded in foreign exchange trading services revenue in our consolidated statement of income. AFS securities are
carried at fair value, with any allowance for credit losses recorded through the consolidated statement of income
and after-tax net unrealized gains and losses are recorded in AOCI. Gains or losses realized on sales of AFS
investment securities are computed using the specific identification method and are recorded in gains (losses)
related to investment securities, net, in our consolidated statement of income. HTM investment securities are
carried at cost, adjusted for amortization of premiums and accretion of discounts, with any allowance for credit
losses recorded through the consolidated statement of income. As of December 31, 2020, we recognized an
allowance for credit losses on HTM investment securities of $3 million.
Prior to adoption of ASC 326 in 2020, AFS securities were carried at fair value, and after-tax net unrealized
gains and losses were recorded in AOCI. HTM investment securities were carried at cost, adjusted for amortization
of premiums and accretion of discounts.
State Street Corporation | 143
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost, fair value and associated unrealized gains and losses of AFS
and HTM investment securities as of the dates indicated:
December 31, 2020
Gross
Unrealized
Gains
Losses
Amortized
Cost
Fair
Value
Amortized
Cost
December 31, 2019
Gross
Unrealized
Gains
Losses
Fair
Value
$
6,453 $ 123 $
1 $
6,575 $
3,506 $
9 $
28 $
3,487
13,891
20,344
421
544
313
90
2,969
3,372
1,994
2,294
12,337
12,729
29,354
1,470
76
3,371
2
—
3
5
4
1
202
177
384
80
2
72
7
8
1
—
6
7
2
4
—
3
9
2
—
—
14,305
20,880
17,599
21,105
264
273
25
53
17,838
21,325
314
90
2,966
3,370
1,996
2,291
12,539
12,903
29,729
1,548
78
3,443
532
90
1,822
2,444
1,978
2,179
12,243
8,595
24,995
1,725
104
2,941
1
—
1
2
3
2
131
73
209
59
—
32
2
1
3
6
1
2
1
10
14
1
—
—
531
89
1,820
2,440
1,980
2,179
12,373
8,658
25,190
1,783
104
2,973
$
57,987 $ 1,087 $
26 $
59,048 $
53,314 $
575 $
74 $ 53,815
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Asset-backed securities:
Student loans(1)
Credit cards
Collateralized loan obligations
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other(2)
Total non-U.S. debt securities
State and political subdivisions(3)
Collateralized mortgage obligations
Other U.S. debt securities
Total(4)
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations
$
6,057 $
83 $ — $
6,140 $
10,311 $
24 $
3 $ 10,332
Mortgage-backed securities
36,883
955
Total U.S. Treasury and federal agencies
42,940
1,038
Asset-backed securities:
Student loans(1)
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Government securities
Total non-U.S. debt securities
Collateralized mortgage obligations
Total(4)
HTM securities purchased under the MMLF
program
Total held-to-maturity securities(4)(5)
67
67
25
25
4
—
4
1
97
—
37,771
43,911
26,297
36,608
316
340
4,782
4,782
3,783
3,783
367
342
709
601
366
328
694
697
10
10
82
—
82
38
50,003
41,782
470
3,304
—
—
44
47
41
41
6
—
6
1
95
—
26,569
36,901
3,752
3,752
442
328
770
734
42,157
—
4,774
4,774
303
342
645
572
33
33
68
—
68
30
48,931
1,169
3,300
4
$
52,231 $ 1,173 $
97 $
53,307 $
41,782 $
470 $
95 $ 42,157
(1) Primarily comprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(2) As of December 31, 2020 and December 31, 2019, the fair value of other non-U.S. debt securities included $9.55 billion and $5.50 billion, respectively, primarily of supranational and non-U.S.
agency bonds, $1.88 billion and $1.78 billion, respectively, of corporate bonds and $0.47 billion and $0.68 billion, respectively, of covered bonds.
(3) As of December 31, 2020 and December 31, 2019, the fair value of state and political subdivisions includes securities in trusts of $0.70 billion and $0.94 billion, respectively. Additional
information about these trusts is provided in Note 14.
(4) An immaterial amount of accrued interest related to HTM and AFS investment securities was excluded from the amortized cost basis for the year ended December 31, 2020.
(5) As of December 31, 2020, we recognized an allowance for credit losses of $3 million on all HTM securities.
State Street Corporation | 144
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate investment securities with carrying values of approximately $70.57 billion and $49.48 billion as of
December 31, 2020 and December 31, 2019, respectively, were designated as pledged for public and trust
deposits, short-term borrowings and for other purposes as provided by law.
In 2020, 2019 and 2018, $8.60 billion, $3.98 billion and $2.13 million, respectively, of agency MBS, previously
classified as AFS, were transferred to HTM. These transfers reflect our intent to hold these securities until their
maturity. These securities were transferred at fair value, which included a net unrealized gain of $120 million and
$49 million as of December 31, 2020 and 2019, respectively, and a net unrealized loss of $53 million as of
December 31, 2018, within accumulated other comprehensive loss which will be accreted into interest income over
the remaining life of the transferred security (ranging from approximately 3 to 37 years).
In 2018, $1.22 billion of HTM securities, primarily consisting of MBS and CMBS, were transferred to AFS at
book value and sold at a pre-tax loss of approximately $36 million, due to our election to make a one-time transfer
of securities relating to the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities.
In 2020, 2019 and 2018, we sold approximately $2.65 billion, $5.64 billion and $26.37 billion, respectively, of
AFS securities, primarily ABS and municipal bonds, resulting in a pre-tax gain of approximately $4 million in 2020, a
pre-tax loss less than $1 million in 2019 and a pre-tax gain of $9 million in 2018.
The following table presents the aggregate fair values of AFS investment securities that have been in a
continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized
loss position for 12 months or longer, as of the dates indicated:
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Asset-backed securities:
Student loans
Collateralized loan obligations
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other
Total non-U.S. debt securities
State and political subdivisions
Other U.S. debt securities
Total
As of December 31, 2020
Less than 12 months
12 months or longer
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
$
1,636 $
1 $
— $
— $
1,636 $
1,394
3,030
31
1,498
1,529
600
1,015
489
715
2,819
95
17
7
8
—
4
4
1
3
—
3
7
—
—
63
63
197
369
566
120
446
—
80
646
76
—
—
—
1
2
3
1
1
—
—
2
2
—
1,457
3,093
228
1,867
2,095
720
1,461
489
795
3,465
171
17
$
7,490 $
19 $
1,351 $
7 $
8,841 $
1
7
8
1
6
7
2
4
—
3
9
2
—
26
State Street Corporation | 145
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the aggregate fair values of AFS and HTM investment securities that have been in
a continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized
loss position for 12 months or longer, as of the dates indicated:
(In millions)
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Asset-backed securities:
Student loans
Credit cards
Collateralized loan obligations
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other
Total non-U.S. debt securities
State and political subdivisions
Collateralized mortgage obligations
Other U.S. debt securities
Total
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities
Total U.S. Treasury and federal agencies
Asset-backed securities:
Student loans
Credit cards
Other
Total asset-backed securities
Non-U.S. debt securities:
Mortgage-backed securities
Asset-backed securities
Government securities
Other
Total non-U.S. debt securities
Collateralized mortgage obligations
Total
As of December 31, 2019
Less than 12 months
12 months or longer
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
$
1,430 $
28 $
— $
— $
1,430 $
2,499
3,929
271
89
862
1,222
228
672
3,246
2,736
6,882
163
13
219
7
35
1
1
2
4
—
1
1
9
11
—
—
—
1,665
1,665
127
—
278
405
220
109
—
187
516
22
4
14
18
18
1
—
1
2
1
1
—
1
3
1
—
—
4,164
5,594
398
89
1,140
1,627
448
781
3,246
2,923
7,398
185
17
233
$ 12,428 $
50 $
2,626 $
24 $ 15,054 $
$
604 $
— $
2,262 $
3 $
2,866 $
6,056
6,660
2,003
—
—
2,003
—
—
—
—
13
31
31
22
—
—
22
—
—
—
—
—
—
1,606
3,868
778
—
—
778
138
—
—
138
110
13
16
19
—
—
19
6
—
—
6
1
7,662
10,528
2,781
—
—
2,781
138
—
—
—
138
123
$
8,676 $
53 $
4,894 $
42 $ 13,570 $
28
25
53
2
1
3
6
1
2
1
10
14
1
—
—
74
3
44
47
41
—
—
41
6
—
—
—
6
1
95
State Street Corporation | 146
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost and the fair value of contractual maturities of debt investment
securities as of December 31, 2020. The maturities of certain ABS, MBS and collateralized mortgage obligations are
based on expected principal payments. Actual maturities may differ from these expected maturities since certain
borrowers have the right to prepay obligations with or without prepayment penalties.
(In millions)
Under 1 Year
1 to 5 Years
6 to 10 Years
Over 10 Years
Total
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
As of December 31, 2020
Available-for-sale:
U.S. Treasury and
federal agencies:
Direct obligations
$
1,648 $
1,661 $
2,758 $
2,771 $
2,047 $
2,143 $
— $
— $
6,453 $
6,575
Mortgage-backed
securities
Total U.S.
Treasury and
federal agencies
Asset-backed securities:
Student loans
Credit cards
Collateralized loan
obligations
Total asset-
backed
securities
Non-U.S. debt
securities:
Mortgage-backed
securities
Asset-backed
securities
Government
securities
Other
Total non-U.S.
debt securities
State and political
subdivisions
Collateralized mortgage
obligations
Other U.S. debt
securities
Total
Held-to-maturity:
U.S. Treasury and
federal agencies:
121
127
603
619
2,800
2,828
10,367
10,731
13,891
14,305
1,769
1,788
3,361
3,390
4,847
4,971
10,367
10,731
20,344
20,880
113
—
76
115
—
76
90
—
90
—
—
90
—
90
1,080
1,077
838
838
110
—
975
109
—
975
313
90
314
90
2,969
2,966
189
191
1,170
1,167
928
928
1,085
1,084
3,372
3,370
260
337
3,149
1,323
260
337
3,151
1,329
527
527
1,250
1,247
7,976
9,520
8,151
9,652
116
272
919
1,718
116
272
939
1,752
1,091
1,093
1,994
1,996
435
293
168
435
298
170
2,294
2,291
12,337
12,729
12,539
12,903
5,069
5,077
19,273
19,577
3,025
3,079
1,987
1,996
29,354
29,729
136
—
449
136
—
605
—
626
—
452
2,833
2,896
514
559
215
227
1,470
1,548
—
89
—
95
76
—
78
—
76
78
3,371
3,443
$
7,612 $
7,644 $
27,242 $ 27,656 $
9,403 $
9,632 $
13,730 $ 14,116 $
57,987 $ 59,048
Direct obligations
$
3,480 $
3,512 $
2,555 $
2,607 $
— $
— $
22 $
21 $
6,057 $
6,140
Mortgage-backed
securities
Total U.S.
Treasury and
federal agencies
Asset-backed securities:
204
211
423
430
5,036
5,174
31,220
31,956
36,883
37,771
3,684
3,723
2,978
3,037
5,036
5,174
31,242
31,977
42,940
43,911
Student loans
350
343
155
152
667
665
3,602
3,622
4,774
4,782
Total asset-
backed
securities
Non-U.S. debt
securities:
Mortgage-backed
securities
Government
securities
Total non-U.S.
debt securities
Collateralized mortgage
obligations
Total
Held-to-maturity under
money market mutual
fund liquidity facility
Total held-to-maturity
securities
350
343
155
152
667
665
3,602
3,622
4,774
4,782
87
342
429
84
342
426
23
—
23
23
—
23
—
—
—
—
—
—
193
—
193
260
—
260
303
342
645
367
342
709
139
4,602
150
4,642
265
3,421
266
3,478
21
5,724
21
5,860
147
35,184
164
36,023
572
48,931
601
50,003
3,300
3,304
—
—
—
—
—
—
3,300
3,304
$
7,902 $
7,946 $
3,421 $
3,478 $
5,724 $
5,860 $
35,184 $ 36,023 $
52,231 $ 53,307
State Street Corporation | 147
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present gross realized
gains and losses from sales of AFS investment
securities, and the components of net impairment
losses included in net gains and losses related to
investment securities
indicated,
for
recognized under previous accounting guidance prior
to the adoption of ASC 326:
the periods
(In millions)
Gross realized gains from sales of AFS
investment securities
Gross realized losses from sales of AFS
investment securities
Net impairment losses:
Gross losses from OTTI
Net impairment losses
Gains (losses) related to investment
securities, net
Net impairment losses, recognized in our
consolidated statement of income, were
composed of the following:
Impairment associated with adverse
changes in timing of expected future cash
flows
Years Ended December 31,
2019
2018
$
31 $
205
(32)
(196)
—
—
(1)
—
(3)
(3)
6
(3)
(3)
Net impairment losses
$
— $
Interest income related to debt securities is
recognized in our consolidated statement of income
using the effective interest method, or on a basis
approximating a
the
contractual or estimated life of the security. The level
rate of return considers any non-refundable fees or
costs, as well as purchase premiums or discounts,
adjusted as prepayments occur,
in
amortization or accretion, accordingly.
level rate of return over
resulting
Allowance for Credit Losses on Debt Securities
and Impairment of AFS Securities
for expected credit
As discussed in Note 1, we adopted ASC 326 on
January 1, 2020. We conduct periodic reviews of
individual securities to assess whether an allowance
for credit losses is required. HTM securities are
evaluated
loss utilizing a
probability of default methodology, or discounted cash
flows assessed against the amortized cost of the
investment security excluding accrued interest. An
AFS security is impaired when the current fair value
of an individual security is below its amortized cost
basis. An allowance for credit losses on impaired AFS
securities is recorded when the present value of
expected future cash flows of the investment security
is less than its amortized cost basis, limited to the
amount by which the security’s amortized cost basis
exceeds the fair value. Investment securities will be
written down to fair value through the consolidated
statement of income when management intends to
sell (or may be required to sell) the securities before
they recover in value.
We monitor the credit quality of the HTM and
AFS investment securities using a variety of methods,
including both external and internal credit ratings. As
of December 31, 2020, 99% of our HTM and AFS
investment portfolio
investment
grade.
is publicly rated
Our allowance for credit losses on our HTM
securities
is approximately $3 million as of
December 31, 2020 and we recorded a $3 million
provision and no charge-offs on HTM securities in
2020.
Our
review of
impaired AFS
investment
securities generally includes:
• the identification and evaluation of securities
that have indications of potential impairment, such as
issuer-specific concerns,
including deteriorating
financial condition or bankruptcy;
•
the analysis of expected future cash flows of
securities, based on quantitative and qualitative
factors;
• the analysis of the collectability of those future
cash flows, including information about past events,
current conditions, and reasonable and supportable
forecasts;
• the analysis of the underlying collateral for
MBS and ABS;
• the analysis of individual impaired securities,
including the anticipated recovery period and the
magnitude of the overall price decline;
• evaluation of factors or triggers that could
cause individual securities to be deemed impaired
and those that would not support impairment; and
• documentation of the results of these analyses.
Substantially all of our investment securities
portfolio is composed of debt securities. A critical
component of our assessment of impairment of these
debt securities is the identification of credit-impaired
securities for which management does not expect to
receive cash flows sufficient to recover the entire
amortized cost basis of the security.
Debt securities that are not deemed to be credit
impaired are subject
to additional management
analysis to assess whether management intends to
sell, or, more likely than not, would be required to sell,
the security before the expected recovery of its
amortized cost basis.
With
respect
to certain classes of debt
securities, primarily U.S. Treasuries and agency
securities (mainly issued by U.S. Government entities
and agencies, as well as Group of Seven
sovereigns), we consider the history of credit losses,
current conditions and reasonable and supportable
forecasts, which may indicate that the expectation
that nonpayment of the amortized cost basis is or
continues to be zero. Therefore, for those securities,
we do not record expected credit losses.
State Street Corporation | 148
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have elected to not record an allowance on
accrued interest for HTM and AFS securities. Accrued
Interest on these securities is reversed against
interest income when payment on a security is
delinquent for greater than 90 days from the date of
payment.
After a review of the investment portfolio, taking
into consideration then-current economic conditions,
adverse situations that might affect our ability to fully
collect principal and interest, the timing of future
payments, the credit quality and performance of the
collateral underlying MBS and ABS and other relevant
factors, management considers the aggregate decline
in fair value of the investment securities portfolio and
the resulting gross pre-tax unrealized losses of $123
million related to 503 securities as of December 31,
2020 to not be the result of any material changes in
the credit characteristics of the securities.
Prior to the adoption of ASC 326 on January 1,
2020, we assessed our AFS and HTM securities for
impairment under an OTTI model. Under this model
impairment of AFS and HTM debt securities was
recorded in our consolidated statement of income
when management intended to sell (or may be
required to sell) the securities before they recovered
in value, or when management expected the present
value of cash flows expected to be collected from the
securities to be less than the amortized cost of the
impaired security (a credit loss). The review of
impaired securities under
the OTTI model was
consistent with the considerations noted for AFS
securities under ASC 326. Where impairment was
indicated based on our review, the following factors
were also considered
in determining whether
impairment was other than temporary:
• certain macroeconomic drivers;
• certain industry-specific drivers;
•
the length of time the security has
been impaired;
•
•
the severity of the impairment;
the cause of the impairment and the
financial condition and near-term prospects of
the issuer;
• activity in the market with respect to
the issuer's securities, which may indicate
adverse credit conditions; and
• our intention not to sell, and the
likelihood that we will not be required to sell,
the security for a period of time sufficient to
allow for its recovery in value.
Substantially all of our investment securities
portfolio is composed of debt securities. A critical
component of our assessment of OTTI of these debt
securities was the identification of credit-impaired
securities for which management did not expect to
receive cash flows sufficient to recover the entire
amortized cost basis of the security. Debt securities
that were not deemed to be credit-impaired were
subject to additional management analysis to assess
whether management intended to sell, or, more likely
than not, would be required to sell, the security before
the expected recovery of its amortized cost basis.
We recorded less than $1 million and $3 million
of OTTI, included in other income, in the years ended
December 31, 2019 and 2018, respectively, which
resulted from adverse changes in the timing of
expected future cash flows from non-U.S. mortgage-
and asset backed securities.
The following table presents a roll-forward with
respect to net impairment losses that had been
recognized in income for the periods indicated:
(In millions)
Years Ended December 31,
2019
2018
Balance, beginning of period
$
78 $
77
Additions(1):
Other-than-temporary-impairment
recognized
Deductions(2):
Realized losses on securities sold or
matured
—
(8)
Balance, end of period
$
70 $
3
(2)
78
1) Additions represent securities with a first time credit impairment realized or when
a subsequent credit impairment has occurred.
(2) Deductions represent impairments on securities that have been sold or matured,
are required to be sold, or for which management intends to sell.
After a review of the investment portfolio, taking
into consideration then-current economic conditions,
adverse situations that might affect our ability to fully
collect principal and interest, the timing of future
payments, the credit quality and performance of the
collateral underlying MBS and ABS and other relevant
factors, management considered
the aggregate
decline in fair value of the investment securities
portfolio and the resulting gross pre-tax unrealized
losses of $123 million and $169 million related to 503
and 622 securities as of December 31, 2020 and
December 31, 2019, respectively, to be temporary,
and not the result of any material changes in the
credit characteristics of the securities.
Note 4. Loans and Allowance for Credit Losses
Loans are generally recorded at their principal
amount outstanding, net of the allowance for credit
losses, unearned income, and any net unamortized
that are
deferred
classified as held-for-sale are measured at lower of
cost or fair value on an individual basis.
loan origination
fees. Loans
Interest income related to loans is recognized in
our consolidated statement of income using the
interest method, or on a basis approximating a level
State Street Corporation | 149
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rate of return over the term of the loan. Fees received
for providing loan commitments and letters of credit
that we anticipate will result in loans typically are
deferred and amortized to interest income over the
term of the related loan, beginning with the initial
borrowing. Fees on commitments and letters of credit
are amortized to software and processing fees over
the commitment period when funding is not known or
expected.
The
following
table presents our recorded
investment in loans, by segment, as of the dates
indicated:
(In millions)
Domestic(1):
Commercial and financial:
Fund Finance(2)
Leveraged loans
Overdrafts
Other(3)
Commercial real estate
Total domestic
Foreign(1):
Commercial and financial:
Fund Finance(2)
Leveraged loans
Overdrafts
Other(3)
Total foreign
Total loans(2)
Allowance for credit losses
December 31,
2020
December 31,
2019
$
11,531 $
10,270
2,923
1,894
2,688
2,096
3,342
1,739
3,411
1,766
21,132
20,528
4,432
1,242
1,088
31
6,793
27,925
(122)
3,145
1,119
1,517
—
5,781
26,309
(74)
Loans, net of allowance
$
27,803 $
26,235
(1) Domestic and foreign categorization is based on the borrower’s country of
domicile.
(2) Fund finance loans include primarily $6,391 million loans to real money
funds, $8,380 million private equity capital call finance loans and $821 million
loans to business development companies as of December 31, 2020,
compared to $6,040 million loans to real money funds, $6,076 million private
equity capital call finance loans and $932 million loans to business
development companies as of December 31, 2019.
(3) Includes $1,911 million securities finance loans, $754 million loans to
municipalities and $54 million other loans as of December 31, 2020 and
$2,537 million securities finance loans, $848 million loans to municipalities
and $26 million other loans as of December 31, 2019.
We segregate our loans into two segments:
commercial and financial loans and commercial real
estate loans. These classifications reflect their risk
characteristics, their initial measurement attributes
and the methods we use to monitor and assess credit
risk.
financial segment
The commercial and
is
composed of primarily floating-rate loans, purchased
leveraged loans, overdrafts and other loans. Fund
finance loans are composed of revolving credit lines
providing liquidity and leverage to mutual fund and
private equity fund clients.
Certain loans are pledged as collateral for
access to the Federal Reserve's discount window. As
of December 31, 2020 and December 31, 2019, the
loans pledged as collateral totaled $8.07 billion and
$6.75 billion, respectively.
interest
the accrual of
We generally place loans on non-accrual status
once principal or interest payments are 90 days
contractually past due, or earlier if management
determines that full collection is not probable. Loans
90 days past due, but considered both well-secured
and in the process of collection, may be excluded
from non-accrual status. When we place a loan on
non-accrual status,
is
discontinued and previously recorded but unpaid
interest is reversed and generally charged against
interest income. For loans on non-accrual status,
income is recognized on a cash basis after recovery
of principal, if and when interest payments are
received. Loans may be removed from non-accrual
status when repayment is reasonably assured and
performance under the terms of the loan has been
demonstrated. As of December 31, 2020 and
December 31, 2019, we had no loans on non-accrual
status. As of December 31, 2020, we had one loan
with principal or interest payments 30 days or more
contractually past due, that was subsequently paid in
January 2021. As of December 31, 2019, we had no
loans with principal or interest payments 30 days or
more contractually past due.
We sold $353 million of leveraged loans in 2020.
We recorded a charge-off against the allowance for
these loans prior to the sale of these loans of
$41 million in 2020.
In certain circumstances, we restructure troubled
loans by granting concessions
to borrowers
experiencing financial difficulty. Once restructured,
the loans are generally considered impaired until their
maturity, regardless of whether the borrowers perform
under the modified terms of the loans. There were no
loans modified in troubled debt restructurings during
the years ended December 31, 2020 and 2019.
Allowance for Credit Losses
We recognize an allowance for credit losses in
accordance with ASC 326 for financial assets held at
amortized cost and off-balance sheet commitments.
Further discussion of our adoption of ASC 326 on
January 1, 2020,
impact on our
including
consolidated financial statements, is provided in Note
1. For additional discussion on the allowance for
credit losses for investment securities, please refer to
Note 3.
the
When the allowance is recorded, a provision for
credit loss expense is recognized in net income. The
allowance
financial assets
losses
(excluding investment securities, as discussed in
Note 3) represents the portion of the amortized cost
basis, including accrued interest for financial assets
for credit
for
State Street Corporation | 150
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
held at amortized cost, which management does not
expect to recover due to expected credit losses and is
presented on the statement of condition as an offset
to the amortized cost basis. The accrued interest
balance is presented separately on the statement of
condition within accrued interest and fees receivable.
The allowance for off-balance sheet commitments is
presented within other liabilities. Loans are charged
off to the allowance for credit losses in the reporting
period in which either an event occurs that confirms
the existence of a loss on a loan, including a sale of a
loan below its carrying value, or a portion of a loan is
determined to be uncollectible.
The allowance
for credit
various methods,
losses may be
determined using
including
discounted cash flow methods, loss-rate methods,
probability-of-default methods, and other quantitative
or qualitative methods as determined by us. The
method used to estimate expected credit losses may
vary depending on the type of financial asset, our
ability to predict the timing of cash flows, and the
information available to us.
The allowance for credit losses as reported in
our consolidated statement of condition is adjusted by
provision for credit losses, which is reported in
earnings, and reduced by the charge-off of principal
amounts, net of recoveries.
We measure expected credit losses of financial
assets on a collective (pool) basis when similar risk
characteristic exist. Each reporting period, we assess
whether the assets in the pool continue to display
similar risk characteristics.
For a financial asset that does not share risk
characteristics with other assets, expected credit
losses are measured based on
the difference
between the discounted value of the expected future
cash flows, utilizing the effective interest rate and the
amortized cost basis of the asset. As of December
31, 2020, we had 5 loans for $77 million in the
commercial and financial segment that no longer met
the similar risk characteristics of their collective pool.
We recorded an allowance for credit losses of
$6 million as of December 31, 2020 on these loans.
When the asset is collateral dependent, which
means when the borrower is experiencing financial
difficulty and repayment is expected to be provided
substantially through the operation or sale of the
collateral, expected credit losses are measured as
the difference between the amortized cost basis of
the asset and the fair value of the collateral, adjusted
for the estimated costs to sell.
Determining
the appropriateness of
the
allowance is complex and requires judgment by
management about the effect of matters that are
inherently uncertain. In future periods, factors and
forecasts then prevailing may result in significant
changes in the allowance for credit losses in those
future periods.
the
factoring
We estimate credit losses over the contractual
life of
in
financial asset, while
prepayment activity, where supported by data, over a
three year reasonable and supportable
forecast
period. We utilize a baseline, upside and downside
scenario which are applied based on a probability
weighting, in order to better reflect management’s
expectation of expected credit losses given existing
market conditions and the changes in the economic
environment. The multiple scenarios are based on a
three year horizon (or less depending on contractual
maturity) and then revert linearly over a two year
period to a ten-year historical average thereafter. The
contractual
term excludes expected extensions,
renewals and modifications, but includes prepayment
assumptions where applicable.
As part of our allowance methodology, we
establish qualitative reserves to address any risks
inherent in our portfolio that are not addressed
through our quantitative reserve assessment. These
factors may relate to, among other things, legislation
changes or new regulation, credit concentration, loan
markets, scenario weighting and overall model
limitations. The qualitative adjustments are applied to
our portfolio of
the
existing governance structure and are inherently
judgmental.
instruments under
financial
Prior to the implementation of ASC 326, we
reviewed loans for indicators of impairment. Loans
where indicators existed were evaluated individually
for impairment at least quarterly. For those loans
where no such indicators were identified, the loans
were collectively evaluated for impairment. As of
December 31, 2019, we had one loan for $25 million
in the commercial and financial segment that was
individually evaluated for impairment and deemed to
be impaired. We recorded a specific reserve of
$1 million for this loan.
Credit Quality
for
Credit quality
financial assets held at
amortized cost are continuously monitored by
management and is reflected within the allowance for
credit losses.
We use an internal risk-rating system to assess
our risk of credit loss for each loan. This risk-rating
process incorporates the use of risk-rating tools in
conjunction with management judgment. Qualitative
and quantitative inputs are captured in a systematic
manner, and following a formal review and approval
process, an internal credit rating based on our credit
scale is assigned.
When computing allowance levels, credit loss
that
loss history,
assumptions are estimated using a model
categorizes asset pools based on
State Street Corporation | 151
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the appropriateness of
delinquency status and other credit trends and risk
characteristics,
including current conditions and
reasonable and supportable forecasts about the
future. Determining
the
allowance is complex and requires judgment by
management about the effect of matters that are
inherently uncertain. In future periods evaluations of
the overall asset portfolio, in light of the factors and
forecasts then prevailing, may result in significant
changes in the allowance and credit loss expense in
those future periods.
Credit quality is assessed and monitored by
evaluating various attributes in order to enable the
earliest possible detection of any concerns with the
those
rating. The
customer’s credit
evaluations are utilized in underwriting new loans and
transactions with counterparties and in our process
for estimation of expected credit losses.
results of
flexibility and earnings strength,
In assessing the risk rating assigned to each
individual loan, among the factors considered are the
borrower's debt capacity, collateral coverage,
payment history and delinquency experience,
the
financial
expected amounts and source of repayment, the level
and nature of contingencies, if any, and the industry
and geography in which the borrower operates.
These factors are based on an evaluation of historical
and current
involve subjective
assessment and interpretation. Credit counterparties
are evaluated and risk-rated on an individual basis at
least annually. Management considers the ratings to
be current as of December 31, 2020.
information, and
Management regularly reviews financial assets
in the portfolio to assess credit quality indicators and
to determine appropriate loans classification and
grading
in accordance with applicable bank
regulations. Our internal risk rating methodology
assigns risk ratings to counterparties ranging from
Investment Grade, Speculative, Special Mention,
Substandard, Doubtful and Loss.
•
Investment Grade. Counterparties with strong
credit quality and low expected credit risk and
probability of default. Approximately 81% of our loans
were rated as investment grade as of December 31,
2020 with external credit ratings, or equivalent, of
"BBB-" or better.
• Speculative. Counterparties that have the
ability to repay but face significant uncertainties, such
as adverse business or financial circumstances that
could affect credit risk. Loans to counterparties rated
as speculative account for approximately 19% of our
loans as of December 31, 2020, and are
concentrated in leveraged loans. Approximately 85%
of those leveraged loans have an external credit
rating, or equivalent, of
"B" as of
December 31, 2020.
"BB" or
• Special Mention. Counterparties with
potential weaknesses that, if uncorrected, may result
in deterioration of repayment prospects.
• Substandard. Counterparties with well-
defined weakness that jeopardizes repayment with
the possibility we will sustain some loss.
• Doubtful. Counterparties with well-defined
weakness which make collection or liquidation in full
highly questionable and improbable.
• Loss. Counterparties which are uncollectible
or have little value.
The following tables present our recorded loans
to counterparties by risk rating, as noted above, as of
the dates indicated:
December 31, 2020
(In millions)
Commercial
and Financial
Commercial
Real Estate
Total
Loans
Investment grade
$
20,859 $
1,724 $ 22,583
Speculative
Special mention
Substandard
Doubtful
Total(1)
4,852
372
5,224
67
34
17
—
—
—
67
34
17
$
25,829 $
2,096 $ 27,925
December 31, 2019
(In millions)
Commercial
and Financial
Commercial
Real Estate
Total
Loans
Investment grade
$
19,501 $
1,766 $ 21,267
Speculative
Special mention
Substandard
Total(1)
5,008
25
9
—
—
—
5,008
25
9
$
24,543 $
1,766 $ 26,309
(1) Loans Include $2,982 million and $3,256 million of overdrafts as of
December 31, 2020 and December 31, 2019, respectively. Overdrafts are short-
term in nature and do not present a significant credit risk to us.
Financial assets held at amortized cost that are
not loans are disaggregated based on product type.
This includes our fees receivable balance, which
have had no history of credit losses, and are
evaluated collectively as a pool.
Securities purchased under a resale agreement
and securities-financing within our principal business
utilize the collateral maintenance provisions included
within ASC 326. An allowance for credit losses is
recognized for any remaining exposure based on
counterparty type.
State Street Corporation | 152
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allowance for credit losses for off-balance sheet credit exposures, recorded in accrued expenses and
other liabilities in our consolidated statement of condition, represents management’s estimate of credit losses
primarily in outstanding letters and lines of credit and other credit-enhancement facilities provided to our clients and
outstanding as of the balance sheet date. The allowance is evaluated quarterly by management. Factors considered
in evaluating the appropriate level of this allowance are similar to those considered with respect to the allowance for
credit losses on financial assets held at amortized cost. Provisions to maintain the allowance at a level considered
by us to be appropriate to absorb estimated credit losses in outstanding facilities are recorded in the provision for
credit losses in our consolidated statement of income.
The following table presents the amortized cost basis, by year of origination and credit quality indicator as of
December 31, 2020. For origination years before the fifth annual period, we present the aggregate amortized cost
basis of loans. For purchased loans, the date of issuance is used to determine the year of origination, not the date
of acquisition. For modified, extended or renewed lending arrangements, we evaluate whether a credit event has
occurred which would consider the loan to be a new arrangement.
(In millions)
Domestic loans:
Commercial and financial:
Risk Rating:
Investment grade
Speculative
Special mention
Substandard
Doubtful
2020
2019
2018
2017
2016
Prior
Revolving Loans
Total(1)
$
1,894 $
388 $
4 $
167 $
200 $
— $
12,836 $ 15,489
432
942
822
610
—
—
—
28
5
—
—
—
—
39
—
—
43
—
29
—
—
—
—
—
597
3,446
—
—
—
67
34
—
Total commercial and financing
$
2,326 $
1,363 $
826 $
816 $
272 $
— $
13,433 $ 19,036
Commercial real estate:
Risk Rating:
Investment grade
Speculative
$
178 $
383 $
688 $
277 $
197 $
— $
120
166
58
—
—
29
Total commercial real estate
$
298 $
549 $
746 $
277 $
197 $
29 $
— $
1,723
—
373
— $
2,096
Non-U.S. loans:
Commercial and financial:
Risk Rating:
Investment grade
Speculative
Doubtful
Total commercial and financing
Total loans
$
$
$
1,028 $
— $
— $
— $
— $
— $
4,343 $
5,371
283
—
401
—
346
—
162
17
26
—
66
—
121
—
1,405
17
1,311 $
401 $
346 $
179 $
26 $
66 $
4,464 $
6,793
3,935 $
2,313 $
1,918 $
1,272 $
495 $
95 $
17,897 $ 27,925
(1) Any reserve associated with accrued interest is not material. As of December 31, 2020, accrued interest receivable of $72 million included in the amortized cost basis of loans
has been excluded from the amortized cost basis within this table.
The following table presents the activity in the allowance for credit losses by portfolio and class for the year
ended December 31, 2020:
Commercial and Financial
Year End December 31, 2020
Leveraged
Loans
Other
Loans(1)
Commercial
Real Estate
Held-to-Maturity
Securities
Off-Balance Sheet
Commitments
All Other
Total
(In millions)
Allowance for credit losses:
Beginning balance
$
61 $
10 $
2 $
— $
19 $
1 $
Charge-offs(2)
Provision
FX translation
Ending balance
(41)
70
7
—
7
—
—
6
—
—
3
—
—
2
1
—
—
—
$
97 $
17 $
8 $
3 $
22 $
1 $
93
(41)
88
8
148
(1) Includes $13 million allowance for credit losses on Fund Finance loans and $4 million on other loans.
(2) Related to the sale of leveraged loans in 2020.
State Street Corporation | 153
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans are reviewed on a regular basis, and any
provisions for credit losses that are recorded reflect
management's estimate of the amount necessary to
maintain the allowance for loan losses at a level
considered appropriate to absorb estimated credit
losses in the loan portfolio. We recorded $88 million
provision for credit losses in 2020, which reflected
both downward credit migration within our loan
portfolio and revision in management’s economic
outlook reflecting
the COVID-19
pandemic. Allowance estimates remain subject to
continued model and economic uncertainty and
management may use qualitative adjustments. If
future data and forecasts deviate relative to the
forecasts utilized to determine our allowance for
credit losses as of December 31, 2020, or if credit risk
migration is higher or lower than forecasted for
reasons independent of the economic forecast, our
allowance for credit losses will also change.
impact of
the
Allowance for Loan Losses under Incurred Loss
Methodology for the years ended December 31,
2019 and December 31, 2018
On-Balance Sheet Credit Exposures
risk
Factors considered in evaluating the appropriate
level of the allowance for each segment of our loan
portfolio under the incurred loss model included loss
experience, the probability of default reflected in our
counterparty's
internal
creditworthiness, then-current economic conditions
and adverse situations that may affect the borrower’s
ability to repay, the estimated value of the underlying
collateral, if any, the performance of individual credits
in relation to contract terms, and other relevant
factors.
rating
the
of
Loans were charged off to the allowance for loan
losses in the reporting period in which either an event
occurred that confirmed the existence of a loss on a
loan, including a sale of a loan below its carrying
value, or a portion of a loan was determined to be
uncollectible. In addition, any impaired loan that was
determined to be collateral-dependent was reduced
to an amount equal to the fair value of the collateral
less costs to sell. A loan was identified as collateral-
dependent when management determined that it was
probable that the underlying collateral would be the
sole source of repayment. Recoveries were recorded
on a cash basis as adjustments to the allowance.
The following table presents activity in the
allowance for loan losses for the periods indicated
under the incurred loss methodology:
(In millions)
Allowance for loan losses:
Beginning balance
Provision for credit losses(1)
Charge-offs(1)
Ending balance
Year Ended
December 31,
2019
Year Ended
December 31,
2018
$
$
67 $
10
(3)
74 $
54
15
(2)
67
(1) The provisions and charge offs for credit losses were primarily attributable to
exposure to purchased leveraged loans to non-investment grade loans.
Off-Balance Sheet Credit Exposures
The
reserve
for off-balance sheet credit
exposures, recorded in accrued expenses and other
liabilities in our consolidated statement of condition,
represented management’s estimate of probable
credit losses primarily in letters and lines of credit and
other credit-enhancement facilities provided to our
clients and outstanding as of the balance sheet date.
The reserve was evaluated on a regular basis by
management. Factors considered in evaluating the
appropriate level of this reserve were similar to those
considered with respect to the allowance for loan
losses. Provisions to maintain the reserve at a level
considered by us
to absorb
in outstanding
estimated
facilities were recorded in other expenses in our
consolidated statement of income.
to be appropriate
incurred credit
losses
Note 5. Goodwill and Other Intangible Assets
long-lived
Goodwill represents the excess of the cost of an
acquisition over the fair value of the net tangible and
other intangible assets acquired. Other intangible
intangible
assets represent purchased
assets, primarily client relationships, that can be
distinguished from goodwill because of contractual
rights or because the asset can be exchanged on its
own or in combination with a related contract, asset
or liability. Goodwill is not amortized, but is subject to
at least annual evaluation for impairment. Other
intangible assets, which are subject to evaluation for
impairment, are mainly related to client relationships,
which are amortized on a straight-line basis over
periods ranging from five to twenty years, technology
assets, which are amortized on a straight-line basis
over periods ranging from three to ten years, and
core deposit intangible assets, which are amortized
on a straight-line basis over periods ranging from
sixteen to twenty-two years, with such amortization
recorded in other expenses in our consolidated
statement of income.
Impairment of goodwill is deemed to exist if the
carrying value of a reporting unit, including its
allocation of goodwill and other intangible assets,
exceeds its estimated fair value. Impairment of other
State Street Corporation | 154
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
intangible assets is deemed to exist if the balance of
the other intangible asset exceeds the cumulative
expected net cash inflows related to the asset over its
remaining estimated useful life. If these reviews
determine that goodwill or other intangible assets are
impaired, the value of the goodwill or the other
intangible asset is written down through a charge to
other expenses in our consolidated statement of
income. There were no impairments to goodwill or
other intangible assets in 2020, 2019 and 2018.
The following table presents changes in the
the periods
carrying amount of goodwill during
indicated:
(In millions)
Goodwill:
Ending balance
December 31, 2018
Acquisitions(2)
Foreign currency
translation
Ending balance
December 31, 2019
Foreign currency
translation
Ending balance
December 31, 2020
Investment
Servicing(1)
Investment
Management
Total
$
7,180 $
266 $
122
(13)
7,289
124
—
1
267
3
7,446
122
(12)
7,556
127
$
7,413 $
270 $
7,683
(1) Investment Servicing includes our acquisition of CRD.
(2) We completed the purchase price accounting for the CRD acquisition as of
March 31, 2019. Upon completion of valuation procedures related to the acquired
assets and assumed liabilities, primarily the identifiable intangible assets, we
recorded measurement period adjustments in the year ended December 31, 2019,
resulting in an increase in the goodwill of $113 million and a decrease of $93
million in other intangible assets.
The following table presents changes in the net
carrying amount of other intangible assets during the
periods indicated:
(In millions)
Other intangible
assets:
Ending balance
December 31, 2018
Acquisitions(2)
Amortization
Foreign currency
translation
Ending balance
December 31, 2019
Amortization
Foreign currency
translation
Ending balance
December 31, 2020
Investment
Servicing(1)
Investment
Management
Total
$
2,218 $
151 $
2,369
(93)
(207)
(10)
1,908
(206)
31
—
(29)
—
122
(28)
—
(93)
(236)
(10)
2,030
(234)
31
$
1,733 $
94 $
1,827
(1) Investment Servicing includes our acquisition of CRD.
(2) We completed the purchase price accounting for the CRD acquisition as of
March 31, 2019. Upon completion of valuation procedures related to the acquired
assets and assumed liabilities, primarily the identifiable intangible assets, we
recorded measurement period adjustments in the year ended December 31, 2019,
resulting in a decrease in the fair value of other intangible assets of $93 million,
with a corresponding increase to goodwill.
The following table presents the gross carrying
amount, accumulated amortization and net carrying
amount of other intangible assets by type as of the
dates indicated:
December 31, 2020
(In millions)
Other intangible
assets:
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Client relationships
$
2,704 $
(1,450) $
1,254
Technology
Core deposits
Other
Total
December 31, 2019
(In millions)
Other intangible
assets:
393
690
107
(113)
(425)
(79)
280
265
28
$
3,894 $
(2,067) $
1,827
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Client relationships
$
3,104 $
(1,718) $
1,386
Technology
Core deposits
Other
Total
403
673
100
(87)
(381)
(64)
316
292
36
$
4,280 $
(2,250) $
2,030
Amortization expense related to other intangible
assets was $234 million, $236 million and $226
million in 2020, 2019 and 2018, respectively.
Expected future amortization expense for other
intangible assets recorded as of December 31, 2020
is as follows:
(In millions)
Future Amortization
Years Ended December 31,
2021
2022
2023
2024
2025
$
235
232
231
224
199
State Street Corporation | 155
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Other Assets
The following table presents the components of other assets as of the dates indicated:
(In millions)
Securities borrowed(1)
Derivative instruments, net
Bank-owned life insurance
Investments in joint ventures and other unconsolidated entities
Collateral, net
Right-of-use assets
Prepaid expenses
Accounts receivable
Income taxes receivable
Deferred tax assets, net of valuation allowance(2)
Receivable for securities settlement
Deposits with clearing organizations
Other
Total
December 31, 2020
December 31, 2019
$
18,330 $
5,804
3,479
3,095
2,713
720
383
379
367
233
117
58
832
18,524
4,753
3,395
2,899
874
858
395
432
309
216
336
58
962
$
36,510 $
34,011
(1) Refer to Note 11, for further information on the impact of collateral on our financial statement presentation of securities borrowing and securities lending transactions.
(2) Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.
Note 7. Deposits
As of December 31, 2020, we had $1.68 billion of time deposits outstanding, all of which were non-US time
deposits. As of December 31, 2019, we had $35.15 billion of time deposits outstanding, of which $3.00 billion were
wholesale CDs, $32.01 billion were derived from client deposits (payable on demand to such clients) and held in a
time deposit established by us as the agent and $139 million were non-U.S. As of December 31, 2020 and 2019, all
U.S. and non-U.S. time deposits were in amounts of $250,000 or more. As of December 31, 2020, all time deposits
are scheduled to mature in 2021. Demand deposit overdrafts of $2.98 billion and $3.26 billion were included as loan
balances at December 31, 2020 and 2019, respectively.
Note 8. Short-Term Borrowings
Our short-term borrowings include securities sold under repurchase agreements, short-term borrowings
associated with our tax-exempt investment program (more fully described in Note 14) and other short-term
borrowings, including those related to the money market liquidity facility.
Collectively, short-term borrowings had weighted-average interest rates of 0.93% and 1.64% in 2020 and 2019,
respectively.
The following table presents information with respect to the amounts outstanding and weighted-average
interest rates of the primary components of our short-term borrowings as of and for the years ended December 31:
(Dollars in millions)
Securities Sold Under
Repurchase Agreements
Tax-Exempt
Investment Program
2020
2019
2018
2020
2019
2018
2020
Other
2019
2018
Balance as of December 31
$ 3,413
$ 1,102
$ 1,082
$ 616
$ 823
$ 931
$ 3,302
$ —
$ 2,000
Maximum outstanding as of
any month-end
Average outstanding during
the year
Weighted-average interest
rate as of year-end
Weighted-average interest
rate during the year
nm Not meaningful
5,373
4,125
3,441
823
931
1,078
25,665
—
2,000
2,615
1,616
2,048
771
898
1,023
8,251
3
nm
.00 %
.00 %
1.38 %
.23 %
1.75 %
1.74 %
1.35 %
.00 %
2.68 %
.14
1.90
.62
.78
1.51
1.46
1.23
.01
nm
Obligations to repurchase securities sold are recorded as a liability in our consolidated statement of condition.
U.S. government securities with a fair value of $3.98 billion underlying the repurchase agreements remained in our
investment securities portfolio as of December 31, 2020.
State Street Corporation | 156
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information about these U.S. government securities and the carrying value of the
related repurchase agreements, including accrued interest, as of December 31, 2020.
U.S. Government
Securities Sold
Amortized
Cost
Fair Value
Repurchase
Agreements(1)
Amortized
Cost
$
2,992 $
3,981 $
3,413
(In millions)
Overnight maturity
(1) Collateralized by investment securities.
We maintain an agreement with a clearing organization that enables us to net all securities purchased under
resale agreements and sold under repurchase agreements with counterparties that are also members of the
clearing organization. As a result of this netting, the average balances of securities purchased under resale
agreements and securities sold under repurchase agreements were reduced by $100.45 billion in 2020 compared to
$86.67 billion in 2019. The increase in average balance sheet netting, in 2020 compared to 2019, is primarily due to
the expansion of our FICC program and new client activity.
State Street Bank currently maintains a line of credit of CAD 1.40 billion, or approximately $1.10 billion, as of
December 31, 2020, to support its Canadian securities processing operations. The line of credit has no stated
termination date and is cancelable by either party with prior notice. As of December 31, 2020 and 2019, there was
no balance outstanding on this line of credit.
Note 9. Long-Term Debt
(Dollars in millions)
Issuance Date
Maturity Date
Coupon Rate
Seniority
Interest Due
Dates
As of December 31,
2020
2019
Parent Company And Non-Banking Subsidiary Issuances
August 18, 2015
August 18, 2015
August 18, 2025
August 18, 2020
November 19, 2013
November 20, 2023
December 15, 2014
May 15, 2013
December 16, 2024
May 15, 2023(2)
3.55 %
2.55 %
3.7 %
3.3 %
3.1 %
Senior notes
Senior notes
Senior notes
Senior notes
Subordinated notes
2/18; 8/18(1)
2/18; 8/18
5/20; 11/20(1)
6/16; 12/16(1)
5/15; 11/15(1)
November 1, 2019
November 1, 2025
2.354 % Fixed-to-floating rate senior notes
5/1; 11/1
January 24, 2020
January 24, 2030
2.400 %
Senior notes
1/24, 7/24
March 30, 2020
March 30, 2020
March 30, 2020
May 15, 2017
March 7, 2011
May 19, 2016
May 19, 2016
March 30, 2023
March 30, 2026
March 30, 2031
May 15, 2023
March 7, 2021
May 19, 2021
May 19, 2026
2.825 % Fixed-to-floating rate senior notes
3/30, 9/30
2.901 % Fixed-to-floating rate senior notes
3/30, 9/30
3.152 % Fixed-to-floating rate senior notes
2.653 % Fixed-to-floating rate senior notes
4.375 %
1.95 %
2.65 %
Senior notes
Senior notes
Senior notes
December 3, 2018
December 3, 2029
4.141 % Fixed-to-floating rate senior notes
December 3, 2018
December 3, 2024
3.776 % Fixed-to-floating rate senior notes
August 18, 2015
August 18, 2020
Floating-rate
Senior notes
April 30, 2007
June 15, 2047
Floating-rate
Junior subordinated debentures
3/30, 9/30
5/15; 11/15(1)
3/7; 9/7(1)
5/19; 11/19(1)
5/19; 11/19(1)
6/3; 12/3(1)
6/3; 12/3(1)
2/18; 5/18; 8/18;
11/18
3/15; 6/15; 9/15;
12/15
November 1, 2019
November 1, 2034(2)
3.031 %
Fixed-to-floating rate senior
subordinated notes
5/1; 11/1
May 15, 1998
May 15, 2028
Floating-rate
Junior subordinated debentures
2/15; 5/15; 8/15;
11/15
June 15, 2026(3)
7.35 %
Senior notes
6/15; 12/15
June 21, 1996
Parent Company
Long-term finance leases
Total long-term debt
$
1,413 $
—
1,070
1,075
1,039
1,047
821
748
498
497
766
752
753
796
594
538
—
499
546
100
150
103
1,331
1,191
1,037
1,022
1,006
991
—
—
—
—
753
748
744
741
546
522
500
499
492
100
150
136
$
13,805 $
12,509
(1) We have entered into interest rate swap agreements, recorded as fair value hedges, to modify our interest expense on these senior and subordinated notes from a fixed rate to a floating rate.
As of December 31, 2020 and 2019, the carrying value of long-term debt associated with these fair value hedges was $691 million and$157 million, respectively. Refer to Note 10 for additional
information about fair value hedges.
(2) The subordinated notes qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines.
(3) We may not redeem notes prior to their maturity.
State Street Corporation | 157
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
junior
floating
In the fourth quarter of 2019, we completed a
cash tender offer for approximately $297 million of
our $800 million aggregate principal amount of
subordinated
rate
outstanding
debentures due 2047,
in a gain of
approximately $44 million. Additionally, in the fourth
quarter of 2019, we completed a redemption for
approximately $50 million of our $150 million
aggregate principal amount of outstanding floating
rate junior subordinated debentures due 2028.
Termination of Replacement Capital Covenant
resulting
Prior to November 20, 2019, we were subject to
a replacement capital covenant dated April 30, 2007
(the Original RCC), as amended by the amendment
to replacement capital covenant dated May 13, 2016
(the RCC Amendment and, together with the Original
RCC, the Replacement Capital Covenant). Pursuant
to the terms of the Replacement Capital Covenant,
neither us nor any of our subsidiaries, including State
Street Bank, was permitted to repay, redeem or
purchase any of the outstanding floating rate junior
subordinated debentures due 2047 prior to June 1,
2047 unless certain conditions had been satisfied,
except to the extent that (i) we obtained the prior
approval of the Federal Reserve, if such approval
was then required, and (ii) we had received proceeds,
up to specified percentages of the aggregate principal
the applicable redemption or
amount repaid or
purchase price,
issuance of
qualifying securities with characteristics that are the
same as, or more equity-like than, the applicable
characteristics of the floating rate junior subordinated
debentures due 2047 during the 180 days prior to the
date of that repayment, redemption or purchase
(which period was to be shortened under certain
specified circumstances). The Replacement Capital
Covenant was a covenant for the benefit of persons
buying, holding or selling specified series of our
unsecured long-term indebtedness or our depository
institution subsidiaries (the Covered Debt). The
original Covered Debt under the Replacement Capital
Covenant were the outstanding floating rate junior
subordinated debentures due 2028.
the sale or
from
The Replacement Capital Covenant was
terminated automatically without further action on
November 20, 2019, following the settlement of the
partial redemption of approximately $50 million
aggregate principal amount of floating rate junior
subordinated debentures due 2028 and
the
redesignation of our 2.650% Senior Notes due 2026
as Covered Debt
the
Replacement Capital Covenant, and purchases of the
floating rate junior subordinated debentures due 2047
are permissible without issuing qualifying securities
under the Replacement Capital Covenant.
the purposes of
for
Parent Company
As of December 31, 2020 and 2019, long-term
finance leases included $103 million and $136 million,
to our One Lincoln Street
respectively, related
headquarters building and
related underground
parking garage. Refer to Note 20 for additional
information.
Note 10. Derivative Financial Instruments
financial
instruments
We use derivative
to
support our clients' needs and to manage our interest
rate and currency risks. These financial instruments
consist of FX contracts such as forwards, futures and
options contracts; interest rate contracts such as
interest rate swaps (cross currency and single
currency) and futures; and other derivative contracts.
Derivative instruments used for risk management
purposes that are highly effective in offsetting the risk
being hedged are generally designated as hedging
instruments in hedge accounting relationships, while
others are economic hedges and not designated in
hedge accounting relationships. Derivatives in hedge
accounting relationships are disclosed according to
the type of hedge, such as, fair value, cash flow, or
net investment. Derivatives designated as hedging
instruments in hedge accounting relationships are
carried at fair value with change in fair value
recognized in the consolidated statement of income
or OCI, as appropriate. Derivatives not designated in
hedge accounting
those
derivatives entered into to support client needs and
derivatives used to manage interest rate or foreign
currency risk associated with certain assets and
liabilities. Such derivatives are carried at fair value
with changes
the
fair value
in
consolidated statement of income.
relationships
recognized
include
in
Derivatives Not Designated
Instruments
as Hedging
instruments,
We provide foreign exchange forward contracts
and options in support of our client needs, and also
act as a dealer in the currency markets. As part of our
trading activities, we assume positions in both the
foreign exchange and interest rate markets by buying
and selling cash instruments and using derivative
financial
foreign exchange
forward contracts, foreign exchange and interest rate
options, interest rate forward contracts, and interest
rate futures. The entire change in the fair value of our
non-hedging derivatives utilized
trading
activities are recorded in foreign exchange trading
services revenue, and the entire change in fair value
of our non-hedging derivatives utilized in our asset-
and-liability management activities are recorded in
net interest income.
including
in our
We enter into stable value wrap derivative
contracts with unaffiliated stable value funds that
State Street Corporation | 158
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
allow a stable value fund to provide book value
coverage
its participants. These derivatives
contracts qualify as guarantees as described in Note
12.
to
We grant deferred cash awards to certain of our
employees as part of our employee
incentive
compensation plans. We account for these awards as
derivative financial instruments, as the underlying
referenced shares are not equity instruments of ours.
The fair value of these derivatives is referenced to the
value of units in State Street-sponsored investment
funds or funds sponsored by other unrelated entities.
fair value
We re-measure
quarterly, and
in
compensation and employee benefits expenses in
our consolidated statement of income.
these derivatives
the change
in value
record
to
Derivatives Designated as Hedging Instruments
formally assess and document
In connection with our asset-and-liability
management activities, we use derivative financial
instruments to manage our interest rate risk and
foreign currency risk for certain assets and liabilities.
At both the inception of the hedge and on an ongoing
the
basis, we
effectiveness of a derivative designated in a hedging
relationship and the likelihood that the derivative will
be an effective hedge
future periods. We
discontinue hedge accounting prospectively when we
determine that the derivative is no longer highly
effective in offsetting changes in fair value or cash
flows of the underlying risk being hedged, the
is sold, or
derivative expires,
management discontinues the hedge designation.
terminates or
in
including
liability or
includes
the asset or
The risk management objective of a highly
effective hedging strategy that qualifies for hedge
accounting must be formally documented. The hedge
the derivative hedging
documentation
instrument,
forecasted
transaction, type of risk being hedged and method for
the derivative
assessing hedge effectiveness of
prospectively and retrospectively. We use quantitative
and
methods
cumulative dollar offset method, comparing
the
change in the fair value of the derivative to the
change in fair value or the cash flows of the hedged
item. We may also utilize qualitative methods such as
matching critical terms and evaluation of any changes
in those critical terms. Effectiveness is assessed and
documented quarterly and if determined that the
derivative is not highly effective at hedging the
designated risk hedge accounting is discontinued.
Fair Value Hedges
regression
analysis
Derivatives designated as fair value hedges are
utilized to mitigate the risk of changes in the fair
values of recognized assets and liabilities, including
long-term debt, AFS securities, and foreign currency
investment securities. We use interest rate or FX
contracts in this manner to manage our exposure to
changes in the fair value of hedged items caused by
changes in interest rates or FX rates.
in
the hedged risk are recognized
Changes in the fair value of the derivative and
changes in fair value of the hedged item due to
changes
in
earnings in the same line item. If a hedge is
item was not
terminated, but
the hedged
derecognized, all remaining adjustments
the
carrying amount of the hedged item are amortized
over a period that is consistent with the amortization
of other discounts or premiums associated with the
hedged item.
Cash Flow Hedges
to
in
foreign
liabilities or
Derivatives designated as cash flow hedges are
utilized to offset the variability of cash flows of
recognized assets or
forecasted
transactions. We have entered into FX contracts to
hedge the change in cash flows attributable to FX
movements
currency denominated
investment securities. Additionally, we have entered
into interest rate swap agreements to hedge the
forecasted cash flows associated with LIBOR indexed
floating-rate
rate swaps
synthetically convert the loan interest receipts from a
variable-rate to a fixed-rate, thereby mitigating the
risk attributable to changes in the LIBOR benchmark
rate.
loans. The
interest
in
Changes
the derivatives
fair value of
designated as cash flow hedges are initially recorded
in AOCI and then reclassified into earnings in the
same period or periods during which the hedged
forecasted
transaction affects earnings and are
presented in the same income statement line item as
the earnings effect of the hedged item. If the hedge
relationship is terminated, the change in fair value on
the derivative recorded in AOCI is reclassified into
earnings consistent with the timing of the hedged
item. For hedge relationships that are discontinued
because a forecasted transaction is not expected to
occur according to the original hedge terms, any
in AOCI are
related derivative values recorded
immediately
in earnings. As of
December 31, 2020, the maximum maturity date of
the underlying loans is approximately 3.7 years.
recognized
Net Investment Hedges
Derivatives categorized as net
investment
hedges are entered into to protect the net investment
in our foreign operations against adverse changes in
exchange rates. We use FX forward contracts to
convert the foreign currency risk to U.S. dollars to
mitigate our exposure to fluctuations in FX rates. The
changes in fair value of the FX forward contracts are
recorded, net of taxes, in the foreign currency
translation component of OCI.
State Street Corporation | 159
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the aggregate contractual, or notional, amounts of derivative financial instruments
including those entered into for trading and asset-and-liability management activities as of the dates indicated:
(In millions)
December 31, 2020
December 31, 2019
Derivatives not designated as hedging instruments:
Interest rate contracts:
Futures
Foreign exchange contracts:
Forward, swap and spot
Options purchased
Options written
Futures
Other:
Stable value contracts(1)
Deferred value awards(2)
Derivatives designated as hedging instruments:
Interest rate contracts:
Swap agreements
Foreign exchange contracts:
Forward and swap
$
2,842 $
4,368
2,640,989
2,378,808
946
661
1,980
32,359
332
7,449
5,221
1,581
1,110
1,040
26,895
389
15,196
3,176
(1) The notional value of the stable value contracts represents our maximum exposure. However, exposure to various stable value contracts is generally contractually
limited to substantially lower amounts than the notional values.
(2) Represents grants of deferred value awards to employees; refer to discussion in this note under "Derivatives Not Designated as Hedging Instruments."
Notional amounts are provided here as an indication of the volume of our derivative activity and serve as a
reference to calculate the fair values of the derivative.
The following tables present the fair value of derivative financial instruments, excluding the impact of master
netting agreements, recorded in our consolidated statement of condition as of the dates indicated. The impact of
master netting agreements is provided in Note 11.
(In millions)
December 31, 2020
December 31, 2019
December 31, 2020
December 31, 2019
Derivative Assets(1)
Derivative Liabilities(2)
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Other derivative contracts
Total
Derivatives designated as hedging instruments:
Foreign exchange contracts
Interest rate contracts
Total
$
$
$
$
25,939 $
15,140 $
25,811 $
—
—
157
25,939 $
15,140 $
25,968 $
4 $
1
5 $
— $
8
8 $
116 $
42
158 $
15,054
182
15,236
96
49
145
(1) Derivative assets are included within other assets in our consolidated statement of condition.
(2) Derivative liabilities are included within other liabilities in our consolidated statement of condition.
State Street Corporation | 160
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the impact of our use of derivative financial instruments on our consolidated
statement of income for the periods indicated:
(In millions)
Derivatives not designated as hedging
instruments:
Foreign exchange contracts
Foreign exchange contracts
Interest rate contracts
Interest rate contracts
Other derivative contracts
Other derivative contracts
Total
Years Ended December 31,
2020
2019
2018
Location of Gain (Loss) on
Derivative in Consolidated
Statement of Income
Amount of Gain (Loss) on Derivative Recognized
in Consolidated Statement of Income
Foreign exchange trading services revenue $
Interest expense(1)
Foreign exchange trading services revenue
Software and processing fees(1)
Foreign exchange trading services revenue
922 $
63
3
—
—
630 $
(153)
(3)
—
—
Compensation and employee benefits
$
(189)
799 $
(205)
269 $
723
(41)
(6)
(1)
5
(171)
509
(1) 2018 includes approximately $15 million of swap costs related to the first quarter of 2018 that were reclassified from software and processing fees to interest
expense.
The following table shows the carrying amount and associated cumulative basis adjustments related to the
application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value
hedging relationships:
(In millions)
Long-term debt
Available-for-sale securities
Total
(In millions)
Long-term debt
Available-for-sale securities
Total
December 31, 2020
Hedged Items Currently Designated
Hedged Items No Longer Designated(1)
Carrying Amount of
Assets and
Liabilities
Cumulative Hedge
Accounting Basis
Adjustments
Carrying Amount of
Assets and
Liabilities
Cumulative Hedge
Accounting Basis
Adjustments
$
$
496 $
2,330
2,826 $
3 $
45
48 $
10,023 $
—
10,023 $
688
—
688
December 31, 2019
Hedged Items Currently Designated
Hedged Items No Longer Designated(1)
Carrying Amount of
Assets and
Liabilities
Cumulative Hedge
Accounting Basis
Adjustments
Carrying Amount of
Assets and
Liabilities
Cumulative Hedge
Accounting Basis
Adjustments
$
$
9,769 $
940
10,709 $
164 $
49
213 $
1,199 $
—
1,199 $
(8)
—
(8)
(1) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet
date.
As of December 31, 2020 and December 31, 2019, the total notional amount of the interest rate swaps of fair
value hedges was $2.60 billion and $10.20 billion, respectively.
State Street Corporation | 161
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the impact of our use of derivative financial instruments on our consolidated
statement of income for the periods indicated:
Location of
Gain (Loss) on
Derivative in
Consolidated
Statement of Income
2018
Years Ended December 31,
2019
2020
Amount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income
Hedged Item in
Fair Value
Hedging
Relationship
Location of Gain
(Loss) on
Hedged Item in
Consolidated
Statement of Income
2018
Years Ended December 31,
2019
2020
Amount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income
(In millions)
Derivatives designated
as fair value hedges:
Foreign exchange
contracts
Foreign exchange
contracts
Software and
processing fees
Software and
processing fees
$ — $ — $
(74)
—
—
(328)
Investment
securities
Foreign
exchange
deposit
Software and
processing fees
Software and
processing fees
Interest rate contracts
Net interest income
Interest rate contracts
Net interest income
1
566
(4)
266
Available-for-
sale securities(1)
31
Net interest income
(58) Long-term debt
Net interest income
(559)
(255)
—
(4)
—
2
328
(32)
49
$ — $ — $
74
Total
$ 567 $ 262 $
(429)
$
(563) $
(253) $
419
(1) In 2020, 2019 and 2018, $3 million, $18 million and $24 million, respectively, of net unrealized gains on AFS investment securities designated in fair value hedges
were recognized in OCI.
Years Ended December 31,
2020
2019
2018
(In millions)
Amount of Gain or (Loss) Recognized in
Other Comprehensive Income on Derivative
Derivatives designated as cash flow hedges:
Location of Gain or
(Loss) Reclassified from
Accumulated Other
Comprehensive Income
into Income
Years Ended December 31,
2020
2019
2018
Amount of Gain or (Loss) Reclassified from
Accumulated Other Comprehensive Income
into Income
Interest rate contracts
Foreign exchange contracts
Total derivatives designated as
cash flow hedges
$
$
176 $
(22)
8 $
(12) Net interest income
43
(12) Net interest income
154 $
51 $
(24)
Derivatives designated as net investment hedges:
Foreign exchange contracts
Total derivatives designated as
net investment hedges
Total
$
$
(250) $
30 $
(250)
(96) $
30
81 $
81
81
57
Gains (Losses) related to
investment securities, net
$
$
$
$
49 $
23
(10) $
27
72 $
17 $
— $
— $
—
72 $
—
17 $
(1)
27
26
—
—
26
Derivatives Netting and Credit Contingencies
Netting
Derivatives receivable and payable as well as cash collateral from the same counterparty are netted in the
consolidated statement of condition for those counterparties with whom we have legally binding master netting
agreements in place. In addition to cash collateral received and transferred presented on a net basis, we also
receive and transfer collateral in the form of securities, which mitigate credit risk but are not eligible for netting.
Additional information on netting is provided in Note 11.
Credit Contingencies
Certain of our derivatives are subject to master netting agreements with our derivative counterparties
containing credit risk-related contingent features, which requires us to maintain an investment grade credit rating
with the various credit rating agencies. If our rating falls below investment grade, we would be in violation of the
provisions, and counterparties to the derivatives could request immediate payment or demand full overnight
collateralization on derivatives instruments in net liability positions. The aggregate fair value of all derivatives with
credit contingent features and in a liability position as of December 31, 2020 totaled approximately $3.91 billion,
against which we provided $1.69 billion of collateral in the normal course of business. If our credit related contingent
features underlying these agreements were triggered as of December 31, 2020, the maximum additional collateral
we would be required to post to our counterparties is approximately $2.22 billion.
State Street Corporation | 162
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Offsetting Arrangements
Certain of our transactions are subject to master netting agreements that allow us to net receivables and
payables by contract and settlement type. For those legally enforceable contracts, we net receivables and payables
with the same counterparty on our statement of condition.
In addition to netting receivables and payables with our derivatives counterparty where a legal and enforceable
netting arrangement exist, we also net related cash collateral received and transferred up to the fair value exposure
amount.
With respect to our securities financing arrangements, we net balances outstanding on our consolidated
statement of condition for those transactions that met the netting requirements and were transacted under a legally
enforceable netting arrangement with the counterparty.
Securities received as collateral under securities financing or derivatives transactions can be transferred as
collateral in many instances. The securities received as proceeds under secured lending transactions are recorded
at a value that approximates fair value in other assets in our consolidated statement of condition with a related
liability to return the collateral, if we have the right to transfer or re-pledge the collateral.
As of December 31, 2020 and December 31, 2019, the value of securities received as collateral from third
parties where we are permitted to transfer or re-pledge the securities totaled $6.48 billion and $10.09 billion,
respectively, and the fair value of the portion that had been transferred or re-pledged as of the same dates was
$3.88 billion and $5.72 million, respectively.
The following tables present information about the offsetting of assets related to derivative contracts and
secured financing transactions, as of the dates indicated:
Assets:
(In millions)
Derivatives:
Foreign exchange contracts
Interest rate contracts(6)
Cash collateral and securities netting
Total derivatives
Other financial instruments:
Resale agreements and securities
borrowing(7)(8)
Total derivatives and other financial
instruments
December 31, 2020
Gross Amounts
of Recognized
Assets(1)(2)
Gross Amounts
Offset in Statement
of Condition(3)
Net Amounts of
Assets Presented in
Statement of
Condition
Gross Amounts Not Offset in
Statement of Condition
Cash and
Securities
Received(4)
Net Amount(5)
$
25,943 $
(14,271) $
11,672 $
— $
11,672
1
NA
25,944
—
(5,869)
(20,140)
1
(5,869)
5,804
—
(1,105)
(1,105)
1
(6,974)
4,699
174,461
(153,025)
21,436
(20,568)
868
$
200,405 $
(173,165) $
27,240 $
(21,673) $
5,567
State Street Corporation | 163
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets:
(In millions)
Derivatives:
Foreign exchange contracts
Interest rate contracts(6)
Cash collateral and securities netting
Total derivatives
Other financial instruments:
Resale agreements and securities
borrowing(7)(8)
Total derivatives and other financial
instruments
December 31, 2019
Gross Amounts
of Recognized
Assets(1)(2)
Gross Amounts
Offset in Statement
of Condition(3)
Net Amounts of
Assets Presented in
Statement of
Condition
Gross Amounts Not Offset in
Statement of Condition
Cash and
Securities
Received(4)
Net Amount(5)
$
15,140 $
(8,081) $
7,059 $
— $
7,059
8
NA
15,148
(4)
(2,310)
(10,395)
4
(2,310)
4,753
—
(685)
(685)
4
(2,995)
4,068
179,989
(159,978)
20,011
(19,572)
439
$
195,137 $
(170,373) $
24,764 $
(20,257) $
4,507
(1) Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.
(2) Refer to Note 1 and Note 2 for additional information about the measurement basis of derivative instruments.
(3) Amounts subject to netting arrangements which have been determined to be legally enforceable and eligible for netting in the consolidated statement of condition.
(4) Includes securities in connection with our securities borrowing transactions.
(5) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.
(6) Variation margin payments presented as settlements rather than collateral.
(7) Included in the $21.44 billion as of December 31, 2020 were $3.11 billion of resale agreements and $18.33 billion of collateral provided related to securities
borrowing. Included in the $20.01 billion as of December 31, 2019 were $1.49 billion of resale agreements and $18.52 billion of collateral provided related to
securities borrowing. Resale agreements and collateral provided related to securities borrowing were recorded in securities purchased under resale agreements and
other assets, respectively, in our consolidated statement of condition. Refer to Note 12 for additional information with respect to principal securities finance
transactions.
(8) Offsetting of resale agreements primarily relates to our involvement in FICC, where we settle transactions on a net basis for payment and delivery through the
Fedwire system.
NA Not applicable
The following tables present information about the offsetting of liabilities related to derivative contracts and
secured financing transactions, as of the dates indicated:
Liabilities:
December 31, 2020
(In millions)
Derivatives:
Foreign exchange contracts
Interest rate contracts(6)
Other derivative contracts
Cash collateral and securities
netting
Total derivatives
Other financial instruments:
Repurchase agreements and
securities lending(7)(8)
Gross Amounts of
Recognized
Liabilities(1)(2)
Gross Amounts
Offset in Statement of
Condition(3)
Net Amounts of
Liabilities Presented in
Statement of Condition
Cash and
Securities
Received(4)
Net Amount(5)
Gross Amounts Not Offset in
Statement of Condition
$
25,927 $
(14,271) $
11,656 $
— $
11,656
42
157
NA
26,126
—
—
(1,287)
(15,558)
42
157
(1,287)
10,568
—
—
(1,732)
(1,732)
42
157
(3,019)
8,836
165,793
(153,025)
12,768
(12,448)
320
Total derivatives and other financial
instruments
$
191,919 $
(168,583) $
23,336 $
(14,180) $
9,156
State Street Corporation | 164
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Liabilities:
(In millions)
Derivatives:
Foreign exchange contracts
Interest rate contracts(6)
Other derivative contracts
Cash collateral and securities netting
Total derivatives
Other financial instruments:
Repurchase agreements and
securities lending(7)(8)
Gross Amounts of
Recognized
Liabilities(1)(2)
Gross Amounts Offset
in Statement of
Condition(3)
Net Amounts of
Liabilities Presented in
Statement of Condition
Gross Amounts Not Offset in
Statement of Condition
Cash and Securities
Received(4)
Net Amount(5)
December 31, 2019
$
15,150 $
(8,081) $
7,069 $
— $
7,069
49
182
NA
15,381
(4)
—
(837)
(8,922)
45
182
(837)
6,459
—
—
(557)
(557)
45
182
(1,394)
5,902
171,853
(159,977)
11,876
(10,793)
1,083
Total derivatives and other financial
instruments
$
187,234 $
(168,899) $
18,335 $
(11,350) $
6,985
(1) Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.
(2) Refer to Note 1 and Note 2 for additional information about the measurement basis of derivative instruments.
(3) Amounts subject to netting arrangements which have been determined to be legally enforceable and eligible for netting in the consolidated statement of condition.
(4) Includes securities provided in connection with our securities lending transactions.
(5) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.
(6) Variation margin payments presented as settlements rather than collateral.
(7) Included in the $12.77 billion as of December 31, 2020 were $3.41 billion of repurchase agreements and $9.36 billion of collateral received related to securities
lending transactions. Included in the $11.88 billion as of December 31, 2019 were $1.10 billion of repurchase agreements and $10.77 billion of collateral received
related to securities lending transactions. Repurchase agreements and collateral received related to securities lending were recorded in securities sold under
repurchase agreements and accrued expenses and other liabilities, respectively, in our consolidated statement of condition. Refer to Note 12 for additional information
with respect to principal securities finance transactions.
(8) Offsetting of repurchase agreements primarily relates to our involvement in FICC, where we settle transactions on a net basis for payment and delivery through the
Fedwire system.
NA Not applicable
The securities transferred under resale and repurchase agreements typically are U.S. Treasury, agency and
agency MBS. In our principal securities borrowing and lending arrangements, the securities transferred are
predominantly equity securities and some corporate debt securities. The fair value of the securities transferred may
increase in value to an amount greater than the amount received under our repurchase and securities lending
arrangements, which exposes us to counterparty risk. We require the review of the price of the underlying securities
in relation to the carrying value of the repurchase agreements and securities lending arrangements on a daily basis
and when appropriate, adjust the cash or security to be obtained or returned to counterparties that is reflective of
the required collateral levels.
The following table summarizes our repurchase agreements and securities lending transactions by category of
collateral pledged and remaining maturity of these agreements as of the periods indicated:
(In millions)
Repurchase agreements:
U.S. Treasury and agency
securities
As of December 31, 2020
As of December 31, 2019
Overnight and
Continuous
Up to 30
Days
Greater
than 90
Days
Total
Overnight and
Continuous
Up to 30
Days
Greater
than 90
Days
Total
$
152,140 $
— $
— $ 152,140 $
156,465 $
— $
— $ 156,465
Total
152,140
—
—
152,140
156,465
—
110
7,578
4,753
12,441
—
—
56
—
56
—
—
1,156
—
—
110
8,790
4,753
1,156
13,653
15
354
7,389
7,500
15,258
—
—
—
—
—
—
—
156,465
—
—
130
—
15
354
7,519
7,500
130
15,388
Securities lending transactions:
US Treasury and agency securities
Corporate debt securities
Equity securities
Other(1)
Total
Gross amount of recognized
liabilities for repurchase
agreements and securities
lending
$
164,581 $
56 $
1,156 $ 165,793 $
171,723 $
— $
130 $ 171,853
(1) Represents a security interest in underlying client assets related to our enhanced custody business, which assets clients have allowed us to transfer and re-pledge.
State Street Corporation | 165
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Commitments and Guarantees
The following table presents the aggregate
gross contractual amounts of our off-balance sheet
commitments and off-balance sheet guarantees as of
the dates indicated:
(In millions)
Commitments:
December 31,
2020
December 31,
2019
Unfunded credit facilities
Guarantees(1):
Indemnified securities financing $
$
Standby letters of credit
34,213 $
29,697
440,875 $
367,901
3,330
3,324
(1) The potential losses associated with these guarantees equal the gross
contractual amounts and do not consider the value of any collateral or reflect
any participations to independent third parties.
Unfunded Credit Facilities
Unfunded credit facilities consist primarily of
liquidity facilities provided to our fund and municipal
counterparties, as well as commitments to purchase
commercial real estate and leveraged loans that have
not yet settled.
As of December 31, 2020, approximately 73% of
our unfunded commitments to extend credit expire
within one year. Since many of these commitments
are expected to expire or renew without being drawn
the gross contractual amounts do not
upon,
necessarily represent our future cash requirements.
Indemnified Securities Financing
On behalf of our clients, we lend their securities,
as agent, to brokers and other institutions. In most
circumstances, we indemnify our clients for the fair
market value of those securities against a failure of
the borrower to return such securities. We require the
borrowers to maintain collateral in an amount in
excess of 100% of the fair market value of the
securities borrowed. Securities on loan and the
collateral are revalued daily to determine if additional
collateral is necessary or if excess collateral is
required to be returned to the borrower. Collateral
received in connection with our securities lending
services is held by us as agent and is not recorded in
our consolidated statement of condition.
The cash collateral held by us as agent is
invested on behalf of our clients. In certain cases, the
cash collateral is invested in third-party repurchase
agreements, for which we indemnify the client against
the loss of the principal invested. We require the
counterparty
repurchase
agreement to provide collateral in an amount in
excess of 100% of the amount of the repurchase
agreement. In our role as agent, the indemnified
repurchase agreements and the related collateral
held by us are not recorded in our consolidated
statement of condition.
indemnified
the
to
The following table summarizes the aggregate
fair values of indemnified securities financing and
related collateral, as well as collateral invested in
indemnified repurchase agreements, as of the dates
indicated:
(In millions)
Fair value of indemnified
securities financing
Fair value of cash and securities
held by us, as agent, as
collateral for indemnified
securities financing
Fair value of collateral for
indemnified securities financing
invested in indemnified
repurchase agreements
Fair value of cash and securities
held by us or our agents as
collateral for investments in
indemnified repurchase
agreements
December 31,
2020
December 31,
2019
$
440,875 $
367,901
463,273
385,428
54,432
45,658
58,092
48,887
to
return collateral
In certain cases, we participate in securities
finance transactions as a principal. As a principal, we
borrow securities from the lending client and then
lend such securities to the subsequent borrower,
either our client or a broker/dealer. Our right to
receive and obligation
in
connection with our securities lending transactions
are recorded in other assets and other liabilities,
in our consolidated statement of
respectively,
condition. As of December 31, 2020 and
December 31, 2019, we had approximately $18.33
billion and $18.52 billion, respectively, of collateral
provided and approximately $9.36 billion and $10.77
billion, respectively, of collateral received from clients
in connection with our participation
in principal
securities finance transactions.
Stable Value Protection
fixed-income
Stable value funds wrapped by us are high
quality diversified portfolios of short intermediate
duration
investments. Stable value
contracts are derivative contracts that also qualify as
guarantees. The notional amount under non-hedging
derivatives, provided in Note 10, generally represents
our maximum exposure under
these derivatives
contracts. However, exposure to various stable value
contracts is contractually limited to substantially lower
amounts than the notional values, which represent
the total assets of the stable value funds.
Standby Letters of Credit
Standby
letters of credit provide credit
enhancement to our municipal clients to support the
issuance of capital markets financing.
State Street Corporation | 166
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Contingencies
Legal and Regulatory Matters
or
inquiries
regulatory
In the ordinary course of business, we and our
subsidiaries are involved in disputes, litigation, and
governmental
and
investigations, both pending and threatened. These
matters, if resolved adversely against us or settled,
may result in monetary awards or payments, fines
and penalties or require changes in our business
practices. The resolution or settlement of these
matters is inherently difficult to predict. Based on our
assessment of these pending matters, we do not
believe that the amount of any judgment, settlement
or other action arising from any pending matter is
likely to have a material adverse effect on our
consolidated financial condition. However, an adverse
outcome or development in certain of the matters
described below could have a material adverse effect
on our consolidated results of operations for the
period in which such matter is resolved, or an accrual
is determined to be required, on our consolidated
financial condition, or on our reputation.
related
legal and
We evaluate our needs for accruals of loss
contingencies
regulatory
to
proceedings on a case-by-case basis. When we have
a liability that we deem probable, and we deem the
amount of such liability can be reasonably estimated
as of
financial
the date of our consolidated
statements, we accrue our estimate of the amount of
loss. We also consider a loss probable and establish
an accrual when we make, or intend to make, an offer
of settlement. Once established, an accrual is subject
to subsequent adjustment as a result of additional
information. The resolution of legal and regulatory
proceedings and the amount of reasonably estimable
loss (or range thereof) are inherently difficult to
predict, especially in the early stages of proceedings.
Even if a loss is probable, an amount (or range) of
loss might not be reasonably estimated until the later
stages of the proceeding due to many factors such as
the presence of complex or novel legal theories, the
discretion of governmental authorities in seeking
sanctions or negotiating resolutions in civil and
criminal matters, the pace and timing of discovery
and other assessments of facts and the procedural
posture of the matter (collectively, "factors influencing
reasonable estimates").
including potential
As of December 31, 2020, our aggregate
accruals for loss contingencies for legal, regulatory
totaled approximately $144
and related matters
million,
fines by government
agencies and civil litigation with respect to the matters
specifically discussed below. To the extent that we
in our consolidated
have established accruals
statement
loss
probable
for
of
contingencies, such accruals may not be sufficient to
condition
cover our ultimate financial exposure associated with
any settlements or judgments. Any such ultimate
financial exposure, or proceedings to which we may
become subject in the future, could have a material
adverse effect on our businesses, on our future
consolidated
financial statements or on our
reputation.
As of December 31, 2020, for those matters for
which we have accrued probable loss contingencies
(including the Invoicing Matter described below) and
for other matters for which loss is reasonably possible
(but not probable) in future periods, and for which we
are able to estimate a range of reasonably possible
loss, our estimate of the aggregate reasonably
possible loss (in excess of any accrued amounts)
ranges up to approximately $40 million. Our estimate
with respect to the aggregate reasonably possible
loss is based upon currently available information and
is subject to significant judgment and a variety of
assumptions and known and unknown uncertainties,
which may change quickly and significantly from time
to time, particularly if and as we engage with
applicable governmental agencies or plaintiffs in
connection with a proceeding. Also, the matters
underlying the reasonably possible loss will change
from time to time. As a result, actual results may vary
significantly from the current estimate.
In certain pending matters, it is not currently
feasible to reasonably estimate the amount or a
range of reasonably possible loss, and such losses,
which may be significant, are not included in the
loss discussed
estimate of reasonably possible
above. This is due to, among other factors, the
factors influencing reasonable estimates described
above. An adverse outcome in one or more of the
matters for which we have not estimated the amount
or a range of reasonably possible loss, individually or
in the aggregate, could have a material adverse effect
on our businesses, on our
future consolidated
financial statements or on our reputation. Given that
our actual
legal or regulatory
from any
proceeding for which we have provided an estimate
of the reasonably possible loss could significantly
exceed such estimate, and given that we cannot
estimate reasonably possible loss for all legal and
regulatory proceedings as to which we may be
subject now or in the future, no conclusion as to our
ultimate exposure from current pending or potential
legal or regulatory proceedings should be drawn from
the current estimate of reasonably possible loss.
losses
The following discussion provides information
with respect to significant legal, governmental and
regulatory matters.
Invoicing Matter
In 2015, we determined that we had incorrectly
invoiced clients for certain expenses. We have
State Street Corporation | 167
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reimbursed most of our affected customers for those
expenses, and we have implemented enhancements
to our billing processes. In connection with our
enhancements to our billing processes, we continue
to review historical billing practices and may from
time to time identify additional remediation. In 2017,
we identified an additional area of incorrect expense
billing associated with mailing services
in our
retirement services business. We currently expect the
cumulative total of our payments to customers for
these invoicing errors, including the error in the
retirement services business, to be at least $370
million, all of which has been paid or is accrued.
However, we may identify additional remediation
costs.
In March 2017, a purported class action was
commenced against us alleging that our invoicing
practices violated duties owed to retirement plan
customers under the Employee Retirement Income
Security Act.
In addition, we have received a
purported class action demand letter alleging that our
invoicing practices were unfair and deceptive under
law. A class of customers, or
Massachusetts
particular customers, may assert that we have not
paid to them all amounts incorrectly invoiced, and
may seek double or
treble damages under
Massachusetts law.
the
are
registered
We are also cooperating with investigations by
governmental and regulatory authorities on these
matters, including the civil and criminal divisions of
the DOJ and the DOL, which reviews could result in
significant fines or other sanctions, civil and criminal,
against us. In June 2019, we reached an agreement
with the SEC to settle its claims that we violated the
recordkeeping provisions of Section 34(b) of the
Investment Company Act of 1940 and caused
violations of Section 31(a) of
Investment
Company Act and Rules 31a-1(a) and 31a-1(b)
thereunder in connection with our overcharges of
investment
customers which
companies. In reaching this settlement, we neither
admitted nor denied the claims contained in the
SEC’s order, and agreed to pay a civil monetary
penalty of $40 million. Also in June 2019, we reached
an agreement with
the Massachusetts Attorney
General’s office to resolve its claims related to this
matter.
this settlement, we neither
admitted nor denied the claims in the order, and
agreed to pay a civil monetary penalty of $5.5 million.
The costs associated with these settlements were
within our related previously established accruals for
loss contingencies. The SEC and Massachusetts
Attorney General’s office settlements both recognize
that the payment of $48.8 million in disgorgement and
interest is satisfied by our direct reimbursements of
our customers.
In reaching
respect
legal accrual with
In January 2020, the DOJ outlined a framework
for a possible resolution of their review. We are
discussing the terms of a potential settlement of this
matter with the DOJ. Separately, we have inquired of
the DOL as to the status of their review but have not
entered into settlement discussions with the DOL.
There can be no assurance that any settlement with
the DOJ or DOL will be reached on financial or other
terms acceptable to us or at all. The aggregate
amount of penalties that may potentially be imposed
upon us in connection with the resolution of all
outstanding investigations into our historical billing
practices is not currently known. We have established
a
the pending
governmental investigations and civil litigation with
respect to this matter, however, our ultimate liability
with respect to this matter might be significantly in
excess of our current accrual. Government authorities
have significant discretion in criminal and civil matters
as to the fines and other penalties they may seek to
impose. Any resolution of the DOJ and DOL claims
may involve penalties that could be a significant
percentage, or a multiple of, all or a portion of the
overcharge. The severity of such fines or penalties
could take into account factors such as the amount or
the
duration of our
government’s or
the
conduct of our employees, as well as prior conduct
such as that which resulted in our January 2017
deferred prosecution agreement and settlement of
civil claims regarding our indirect FX business.
invoicing and
regulators’ assessment of
incorrect
to
The outcome of any of these proceedings and,
in particular, any criminal sanction could materially
adversely affect our results of operations and could
have significant additional consequences for our
business and reputation.
Federal Reserve/Massachusetts Division of Banks
Written Agreement
the Federal Reserve and
relating
On June 1, 2015, we entered into a written
the
agreement with
Massachusetts Division of Banks
to
deficiencies identified in our compliance programs
with the requirements of the Bank Secrecy Act, Anti-
Money Laundering regulations and U.S. economic
sanctions regulations promulgated by the Office of
Foreign Assets Control. As part of this enforcement
action, we have been required to, among other
things, implement improvements to our compliance
programs. In June 2020, the Federal Reserve and the
Massachusetts Division of Banks terminated the
written agreement, based on our compliance with its
requirements.
Shareholder Litigation
A shareholder of ours has filed a derivative
complaint against the Company’s past and present
officers and directors to recover alleged losses
State Street Corporation | 168
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
incurred by the Company relating to the invoicing
matter and to the Ohio public retirement plans matter.
Income Taxes
In determining our provision for income taxes,
we make certain judgments and interpretations with
respect to tax laws in jurisdictions in which we have
business operations. Because of the complex nature
of these laws, in the normal course of our business,
we are subject to challenges from U.S. and non-U.S.
income tax authorities regarding the amount of
income taxes due. These challenges may result in
adjustments to the timing or amount of taxable
income or deductions or the allocation of taxable
income among tax jurisdictions. We recognize a tax
benefit when it is more likely than not that our position
will result in a tax deduction or credit. Unrecognized
tax benefits of approximately $308 million as of
December 31, 2020 increased from $149 million as of
December 31, 2019.
We are presently under audit by a number of tax
authorities, and the Internal Revenue Service is
currently reviewing our U.S. income tax returns,
including amended returns, for tax years 2014-2018.
The earliest
in
jurisdictions where we have material operations is
2013. Management believes that we have sufficiently
accrued liabilities as of December 31, 2020 for
potential tax exposures.
tax year open
to examination
Note 14. Variable Interest Entities
We are involved, in the normal course of our
business, with various types of special purpose
entities, some of which meet the definition of VIEs.
When evaluating a VIE for consolidation, we must
determine whether or not we have a variable interest
in the entity. Variable interests are investments or
other interests that absorb portions of an entity’s
expected losses or receive portions of the entity’s
expected returns. If it is determined that we do not
have a variable interest in the VIE, no further analysis
is required and we do not consolidate the VIE. If we
hold a variable interest in a VIE, we are required by
U.S. GAAP to consolidate that VIE when we have a
controlling financial interest in the VIE and therefore
are deemed to be the primary beneficiary. We are
determined to have a controlling financial interest in a
VIE when it has both the power to direct the activities
of the VIE that most significantly impact the VIE’s
economic performance and the obligation to absorb
losses or the right to receive benefits of the VIE that
could potentially be significant to that VIE. This
determination is evaluated periodically as facts and
circumstances change.
Asset-Backed Investment Securities
We invest in various forms of ABS, which we
carry in our investment securities portfolio. These
ABS meet
the U.S. GAAP definition of asset
securitization entities, which are considered to be
VIEs. We are not considered to be the primary
beneficiary of these VIEs since we do not have
control over their activities. Additional information
about our ABS is provided in Note 3.
Tax-Exempt Investment Program
In the normal course of our business, we
structure and sell certificated interests in pools of tax-
exempt investment grade assets, principally to our
mutual fund clients. We structure these pools as
partnership trusts, and the assets and liabilities of the
trusts are recorded in our consolidated statement of
condition as AFS investment securities and other
short-term borrowings. As of December 31, 2020 and
December 31, 2019, we carried AFS investment
securities, composed of securities related to state and
political subdivisions, with a fair value of $0.70 billion
and $0.94 billion, respectively, and other short-term
borrowings of $0.62 billion and $0.82 billion,
respectively,
in our consolidated statement of
condition in connection with these trusts. The interest
income and interest expense generated by the
investments and certificated interests, respectively,
are recorded as components of NII when earned or
incurred.
We transfer assets to the trusts from our
investment securities portfolio at adjusted book value,
and the trusts finance the acquisition of these assets
by selling certificated interests issued by the trust to
third-party investors and to us as residual holder.
These transfers do not meet the de-recognition
criteria defined by U.S. GAAP, and therefore, the
assets continue to be recorded in our consolidated
financial statements. The trusts had a weighted-
life of approximately 2.7 years as of
average
December 31, 2020, compared to approximately 3.0
years as of December 31, 2019.
State Street Corporation | 169
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under separate legal agreements, we provide
liquidity facilities to these trusts and, with respect to
certain securities, letters of credit. As of December
31, 2020, our commitments to the trusts under these
liquidity facilities and/or letters of credit totaled $0.62
billion, and neither of the liquidity facilities nor letters
that our
of credit were utilized.
obligations under
facilities are
triggered, no material impact to our consolidated
results of operations or financial condition is expected
to occur, because the securities are already recorded
at
in our consolidated statement of
condition. In addition, neither creditors or third-party
investors in the trusts have any recourse to our
general credit other than through the liquidity facilities
and letters of credit noted above.
the event
fair value
liquidity
these
In
Interests in Investment Funds
In the normal course of business, we manage
various types of investment funds through State
Street Global Advisors in which our clients are
investors, including State Street Global Advisors
commingled investment vehicles and other similar
investment structures. The majority of our AUM are
contained within such funds. The services we provide
to these funds generate management fee revenue.
From time to time, we may invest cash in the funds in
order for the funds to establish a performance history
for newly-launched strategies, referred to as seed
capital, or for other purposes.
With respect to our interests in funds that meet
the definition of a VIE, a primary beneficiary
assessment is performed to determine if we have a
interest. As part of our
controlling
financial
facts and
assessment, we consider all
the
and
circumstances
characteristics of the variable interest(s), the design
and characteristics of
the other
the
involvements of the enterprise with the fund. Upon
consolidation of certain
the
specialized investment company accounting rules
followed by the underlying funds.
funds, we
fund and
regarding
retain
terms
the
All of the underlying investments held by such
consolidated funds are carried at fair value, with
corresponding changes in the investments’ fair values
reflected
trading services
revenue in our consolidated statement of income.
When we no longer control these funds due to a
foreign exchange
in
reduced ownership interest or other reasons, the
funds are de-consolidated and accounted for under
another accounting method if we continue to maintain
investments in the funds.
As of December 31, 2020, the aggregate assets
and
liabilities of our consolidated sponsored
investment funds totaled $17 million and $4 million,
respectively. As of December 31, 2019, the aggregate
assets and liabilities of our consolidated sponsored
investment funds totaled $21 million and $5 million,
respectively. As of December 31, 2020 and
December 31, 2019, our maximum total exposure
associated with
sponsored
investment funds totaled $13 million and $15 million,
the value of our
respectively, and represented
economic ownership interest in the funds.
consolidated
the
Our conclusion to consolidate a fund may vary
from period to period, most commonly as a result of
fluctuation in our ownership interest as a result of
changes in the number of fund shares held by either
us or by third parties. Given that the funds follow
specialized investment company accounting rules
fair value, a de-consolidation
which prescribe
generally would not result in gains or losses for us.
investors’ ownership
The net assets of any consolidated fund are
solely available to settle the liabilities of the fund and
redemption
to settle any
requests, including any seed capital invested in the
fund by us. We are not contractually required to
provide financial or any other support to any of our
funds.
In addition, neither creditors nor equity
investors in the funds have any recourse to our
general credit.
As of December 31, 2020 and December 31,
2019, we managed certain funds, considered VIEs, in
which we held a variable interest but for which we
were not deemed to be the primary beneficiary. Our
potential maximum loss exposure related to these
unconsolidated funds totaled $22 million and $21
million as of December 31, 2020 and December 31,
2019, respectively, and represented the carrying
value of our investments, which are recorded in other
assets in our consolidated statement of condition.
The amount of loss we may recognize during any
period is limited to the carrying amount of our
investments in the unconsolidated funds.
State Street Corporation | 170
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Shareholders' Equity
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and
outstanding as of December 31, 2020:
Preferred
Stock(2):
Issuance Date
Depositary
Shares
Issued
Ownership
Interest Per
Depositary
Share
Liquidation
Preference
Per Share
Liquidation
Preference
Per
Depositary
Share
Series D
February 2014
30,000,000
1/4,000th
100,000
25
Series F(3) May 2015
750,000
1/100th
100,000
1,000
Series G
April 2016
20,000,000
1/4,000th
100,000
25
Series H
September 2018
500,000
1/100th
100,000
1,000
Dividend
Payment
Frequency
Carrying
Value as of
December
31, 2020
(In millions)
Redemption Date(1)
Quarterly
$
742 March 15, 2024
Quarterly
742 September 15, 2020
Quarterly
493 March 15, 2026
Per Annum Dividend Rate
5.90% to but excluding March
15, 2024, then a floating rate
equal to the three-month LIBOR
plus 3.108%
5.25% to but excluding
September 15, 2020, then a
floating rate equal to the three-
month LIBOR plus 3.597%, or
3.81350% effective December
15, 2020
5.35% to but excluding March
15, 2026, then a floating rate
equal to the three-month LIBOR
plus 3.709%
5.625% to but excluding
December 15, 2023, then a
floating rate equal to the three-
month LIBOR plus 2.539%
Semi-
annually
494 December 15, 2023
(1) On the redemption date, or any dividend payment date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price
per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
(2) The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital
treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid
dividends, without accumulation of any undeclared dividends.
(3) Series F preferred stock is redeemable on September 15, 2020 and on each succeeding dividend payment date. We did not elect redemption on September 15, 2020 or December 15, 2020.
We redeemed all outstanding Series C non-cumulative perpetual preferred stock on March 15, 2020 at a
redemption price of $500 million ($100,000 per share equivalent to $25.00 per depositary share) plus accrued and
unpaid dividends. The difference of $9 million between the redemption value and the net carrying value resulted in
an EPS impact of approximately ($0.03) per share in the first quarter of 2020.
On January 14, 2021, we announced that we will redeem on March 15, 2021 an aggregate of $500 million, or
5,000 of the 7,500 outstanding shares of our non-cumulative perpetual preferred stock, Series F, for cash at a
redemption price of $100,000 per share (equivalent to $1,000 per depositary share) plus all declared and unpaid
dividends. A cash dividend of $953.38 per share of Series F Preferred Stock (or approximately $9.5338 per
depositary share) has been declared for the period from December 15, 2020 up to but not including March 15, 2021
(the “March Dividend”). The March Dividend will be paid separately to the holders of record of the Series F
Preferred Stock as of March 1, 2021 in the customary manner. Accordingly, there will not be any declared and
unpaid dividends included in the redemption price.
The following table presents the dividends declared for each of the series of preferred stock issued and
outstanding for the periods indicated:
Dividends
Declared per
Share
2020
Dividends
Declared per
Depositary
Share
Years Ended December 31,
Total
Dividends
Declared per
Share
2019
Dividends
Declared per
Depositary
Share
Total
$
1,313 $
0.33 $
6 $
5,250 $
1.32 $
5,900
—
6,223
5,352
5,625
1.48
—
62.23
1.32
56.25
44
—
47
27
28
5,900
6,000
5,250
5,352
5,625
1.48
1.52
52.50
1.32
56.25
26
44
45
40
27
28
$
152
$
210
(Dollars in millions, except per
share amounts)
Preferred Stock:
Series C
Series D
Series E
Series F
Series G
Series H
Total
In January 2021, we declared dividends on our series D, F, and G preferred stock of approximately $1,475,
$953, and $1,338, respectively, per share, or approximately $0.37, $9.53, and $0.33, respectively, per depositary
share. These dividends total approximately $11 million, $7 million, and $7 million on our series D, F, and G preferred
stock, respectively, which will be paid in March 2021.
State Street Corporation | 171
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock
In June 2019, our Board approved a common stock purchase program authorizing the purchase of up to
$2.0 billion of our common stock from July 1, 2019 through June 30, 2020 (the 2019 Program). We repurchased
$500 million of our common stock in each of the third and fourth quarters of 2019 and the first quarter of 2020 under
the 2019 Program. On March 16, 2020, we, along with the other U.S. G-SIBs, suspended common share
repurchases and maintained this suspension through the fourth quarter of 2020 in response to the COVID-19
pandemic. This suspension was consistent with limitations imposed by the Federal Reserve beginning in the second
quarter of 2020. As a result, we had no repurchases of our common stock in the second, third or fourth quarters of
2020.
In June 2020, concurrent with the release of the CCAR 2020 results, the Federal Reserve announced that all
CCAR banks were required to resubmit their capital plan and stress test results based on scenarios to be provided
in September 2020. Scenarios were provided on September 17, 2020 with materials due on November 2, 2020. In
December 2020, the Federal Reserve issued results of 2020 resubmission stress tests and authorized us to
continue to pay common stock dividends at current levels and to resume repurchasing common shares in the first
quarter of 2021. In January 2021, our Board authorized a share repurchase program for the purchase of up to
$475 million of our common stock through March 31, 2021.
In June 2018, our Board approved a common stock purchase program authorizing the purchase of up to $1.2
billion of our common stock through June 30, 2019 (the 2018 Program). We repurchased $300 million of our
common stock in each of the first and second quarters of 2019 under the 2018 Program.
The table below presents the activity under our common stock purchase program for the period indicated:
Shares Acquired (In millions)
Average Cost per Share
Total Acquired (In millions)
2019 Program
Total
6.5 $
6.5
77.35 $
77.35 $
500
500
The table below presents the dividends declared on common stock for the periods indicated:
Year Ended December 31, 2020
Years Ended December 31,
2020
2019
Common Stock
$
2.08 $
734 $
1.98 $
728
Dividends Declared per Share
Total (In millions)
Dividends Declared per Share
Total (In millions)
Accumulated Other Comprehensive Income (Loss)
The following table presents the after-tax components of AOCI for the periods indicated:
(In millions)
Net unrealized gains (losses) on cash flow hedges
Net unrealized gains (losses) on available-for-sale securities portfolio
Net unrealized gains (losses) related to reclassified available-for-sale securities
Net unrealized gains (losses) on available-for-sale securities
Net unrealized (losses) on available-for-sale securities designated in fair value hedges
Net unrealized gains (losses) on hedges of net investments in non-U.S. subsidiaries
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit
Net unrealized (losses) on retirement plans
Foreign currency translation
Total
Years Ended December 31,
2020
2019
2018
$
57
$
(70) $
936
(55)
881
(33)
(204)
(2)
(178)
(334)
426
19
445
(36)
46
(2)
(187)
(1,072)
(89)
(193)
58
(135)
(40)
16
(2)
(143)
(963)
$
187
$
(876) $
(1,356)
State Street Corporation | 172
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents changes in AOCI by component, net of related taxes, for the periods indicated:
(In millions)
Net Unrealized
Gains (Losses)
on Cash Flow
Hedges
Net Unrealized
Gains
(Losses) on
Available-for-
Sale Securities
Net Unrealized
Gains (Losses) on
Hedges of Net
Investments in Non-
U.S. Subsidiaries
Other-Than-
Temporary
Impairment on
Held-to-Maturity
Securities
Net
Unrealized
Losses on
Retirement
Plans
Foreign
Currency
Translation
Total
Balance as of December 31, 2018
$
(89) $
(175) $
16 $
(2) $
(143) $
(963) $
(1,356)
Other comprehensive income (loss) before
reclassifications
Reclassification of certain tax effects(1)
Amounts reclassified into (out of) earnings
Other comprehensive income (loss)
Balance as of December 31, 2019
Other comprehensive income (loss) before
reclassifications
Amounts reclassified into earnings
Other comprehensive income (loss)
Balance as of December 31, 2020
$
$
13
(6)
12
19
563
21
—
584
33
(3)
—
30
2
(1)
(1)
—
—
(28)
(16)
(44)
(42)
(67)
—
(109)
569
(84)
(5)
480
(70) $
409 $
46 $
(2) $
(187) $
(1,072) $
(876)
75
52
127
439
—
439
(250)
—
(250)
—
—
—
—
9
9
738
—
738
1,002
61
1,063
57 $
848 $
(204) $
(2) $
(178) $
(334) $
187
(1) Represents the reclassification from accumulated other comprehensive income into retained earnings as a result of our adoption of ASU 2018-02 - Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income in the first quarter of 2019.
The following table presents after-tax reclassifications into earnings for the periods indicated:
(In millions)
Held-to-maturity securities:
Years Ended December 31,
2020
2019
Amounts Reclassified into
(out of) Earnings
Affected Line Item in Consolidated
Statement of Income
Other-than-temporary impairment on held-to-maturity securities related to
factors other than credit, net of related taxes of zero and zero, respectively
$
— $
Losses reclassified (from) to other
comprehensive income
(1)
Cash flow hedges:
Gain reclassified from accumulated other comprehensive income into Income,
net of related taxes of $20 and $5
52
Net interest income reclassified from other
comprehensive income
12
Retirement plans:
Amortization of actuarial losses, net of related taxes of $3 and ($8), respectively
Total reclassifications (into) out of Accumulated other comprehensive loss
$
9
61 $
(16)
(5)
Compensation and employee benefits
expenses
State Street Corporation | 173
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. Regulatory Capital
We are subject to various regulatory capital requirements administered by federal banking agencies.
Failure to meet minimum regulatory capital requirements can initiate certain mandatory and discretionary
actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial
condition. Under current regulatory capital adequacy guidelines, we must meet specified capital requirements
that involve quantitative measures of our consolidated assets, liabilities and off-balance sheet exposures
calculated in conformity with regulatory accounting practices. Our capital components and their classifications
are subject to qualitative judgments by regulators about components, risk weightings and other factors.
As required by the Dodd-Frank Act, we and State Street Bank, as advanced approaches banking
organizations, are subject to a "capital floor" in the calculation and assessment of regulatory capital adequacy
by U.S. banking regulators. Beginning on January 1, 2015, we were required to calculate our risk- based capital
ratios using both the advanced approaches and the standardized approach. As a result, from January 1, 2015
going forward, our risk-based capital ratios for regulatory assessment purposes are the lower of each ratio
calculated under the standardized approach and the advanced approaches.
The methods for the calculation of our and State Street Bank's risk-based capital ratios have changed as
the provisions of the Basel III rule related to the numerator (capital) and denominator (RWA) were phased in,
and as we calculated our RWA using the advanced approaches. These ongoing methodological changes have
resulted in differences in our reported capital ratios from one reporting period to the next that are independent of
applicable changes to our capital base, our asset composition, our off-balance sheet exposures or our risk
profile.
As of December 31, 2020, we and State Street Bank exceeded all regulatory capital adequacy
requirements to which we were subject. As of December 31, 2020, State Street Bank was categorized as “well
capitalized” under the applicable regulatory capital adequacy framework, and exceeded all “well capitalized”
ratio guidelines to which it was subject. Management believes that no conditions or events have occurred since
December 31, 2020 that have changed the capital categorization of State Street Bank.
The following table presents the regulatory capital structure, total RWA, related regulatory capital ratios
and the minimum required regulatory capital ratios for us and State Street Bank as of the dates indicated. As a
result of changes in the methodologies used to calculate our regulatory capital ratios from period to period as
the provisions of the Basel III rule were phased in, the ratios presented in the table for each period-end are not
directly comparable. Refer to the footnotes following the table.
State Street Corporation | 174
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
State Street Corporation
State Street Bank
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Basel III
Advanced
Approaches
December 31,
2019
Basel III
Standardized
Approach
December 31,
2019
Basel III
Advanced
Approaches
December 31,
2020
Basel III
Standardized
Approach
December 31,
2020
Basel III
Advanced
Approaches
December 31,
2019
Basel III
Standardized
Approach
December 31,
2019
(Dollars in millions)
Common shareholders' equity:
Common stock and related surplus
$
10,709
$
10,709
$
10,636
$
10,636
$
12,893
$
12,893
$
12,893
$
12,893
Retained earnings
23,442
23,442
21,918
21,918
12,939
12,939
13,218
13,218
Accumulated other comprehensive income (loss)
187
187
(870)
(870)
Treasury stock, at cost
(10,609)
(10,609)
(10,209)
(10,209)
371
—
371
—
(654)
—
(654)
—
Total
23,729
23,729
21,475
21,475
26,203
26,203
25,457
25,457
Regulatory capital adjustments:
Goodwill and other intangible assets, net of
associated deferred tax liabilities
Other adjustments(1)
Common equity tier 1 capital
Preferred stock
Tier 1 capital
Qualifying subordinated long-term debt
Allowance for credit losses
Total capital
Risk-weighted assets:
Credit risk(2)
Operational risk(3)
Market risk
(9,019)
(9,019)
(9,112)
(9,112)
(8,745)
(8,745)
(8,839)
(8,839)
(333)
(333)
(150)
(150)
(152)
(152)
(1)
(1)
14,377
2,471
16,848
961
1
14,377
2,471
16,848
961
148
12,213
2,962
15,175
1,095
5
12,213
2,962
15,175
1,095
90
17,306
17,306
16,617
16,617
—
—
17,306
17,306
966
10
966
148
—
16,617
1,099
3
—
16,617
1,099
90
$
17,810
$
17,957
$
16,275
$
16,360
$
18,282
$
18,420
$
17,719
$
17,806
$
63,367
$ 114,892
$
54,763
$ 102,367
$
58,960
$ 110,797
$
51,610
$
98,979
44,150
2,188
NA
2,188
47,963
1,638
NA
1,638
43,663
2,188
NA
2,188
44,138
1,638
NA
1,638
Total risk-weighted assets
$ 109,705
$ 117,080
$ 104,364
$ 104,005
$ 104,811
$ 112,985
$
97,386
$ 100,617
Adjusted quarterly average assets
$ 263,490
$ 263,490
$ 219,624
$ 219,624
$ 260,489
$ 260,489
$ 216,397
$ 216,397
Capital Ratios:
2020 Minimum
Requirements(4)
2019 Minimum
Requirements(5)
Common equity
tier 1 capital
Tier 1 capital
Total capital
Tier 1
leverage(6)
8.0 %
8.5 %
13.1 %
12.3 %
11.7 %
11.7 %
16.5 %
15.3 %
17.1 %
16.5 %
9.5
11.5
4.0
10.0
12.0
4.0
15.4
16.2
6.4
14.4
15.3
6.4
14.5
15.6
6.9
14.6
15.7
6.9
16.5
17.4
6.6
15.3
16.3
6.6
17.1
18.2
7.7
16.5
17.7
7.7
(1) Other adjustments within CET1 primarily include the overfunded portion of the firm’s defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed
deferred tax assets, and other required credit risk based deductions.
(2) Includes a CVA which reflects the risk of potential fair value adjustments for credit risk reflected in our valuation of OTC derivative contracts. We used a simple CVA approach in
conformity with the Basel III advanced approaches.
(3) Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from
period-to-period, without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may
differ from the dates and periods as of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for
model updates and, if applicable, model revalidation and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output
of our operational RWA under the advanced approaches depending on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(4) Assuming a countercyclical buffer of 0%, the minimum requirements include a capital conservation buffer and a stress capital buffer for advanced and standardized,
respectively, and a G-SIB surcharge.
(5) Assuming a countercyclical buffer of 0%, the minimum requirements include a capital conservation buffer and a G-SIB surcharge.
(6) State Street Bank is required to maintain a minimum Tier 1 leverage ratio of 5% as it is the insured depository institution subsidiary of one of the eight US G-SIBs.
NA Not applicable
State Street Corporation | 175
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Net Interest Income
The following table presents the components of
interest income and interest expense, and related NII,
for the periods indicated:
(In millions)
Interest income:
Years Ended December 31,
2020
2019
2018
Interest-bearing deposits with banks
$
76 $
416 $
387
Investment securities:
U.S. Treasury and federal agencies
1,174
1,443
1,178
State and political subdivisions
Other investments
Investment securities purchased
under money market liquidity facility
37
366
117
49
505
—
143
560
—
Total Investment securities
1,694
1,997
1,881
Securities purchased under resale
agreements
Loans and leases
Other interest-earning assets
Total interest income
Interest expense:
126
624
55
364
769
395
335
687
372
2,575
3,941
3,662
Interest-bearing deposits
(117)
663
363
Short term borrowings under money
market liquidity facility
Securities sold under repurchase
agreements
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Total interest expense
Net interest income
101
4
17
312
58
375
—
31
21
414
246
1,375
—
13
17
389
209
991
$
2,200 $
2,566 $
2,671
Note 18. Equity-Based Compensation
We record compensation expense for equity-
based awards, such as deferred stock and
performance awards, based on the closing price of
our common stock on the date of grant, adjusted if
appropriate, based on the eligibility of the award to
receive dividends.
Compensation expense related to equity-based
awards with service-only conditions and terms that
provide for a graded vesting schedule is recognized
on a straight-line basis over the required service
period for the entire award. Compensation expense
related to equity-based awards with performance
conditions and terms that provide for a graded vesting
schedule is recognized over the requisite service
period for each separately vesting tranche of the
award, and is based on the probable outcome of the
performance conditions at each reporting date.
Compensation expense is adjusted for assumptions
with respect to the estimated amount of awards that
will be forfeited prior to vesting, and for employees
who have met certain retirement eligibility criteria.
Compensation expense for common stock awards
granted
to employees meeting early retirement
eligibility criteria is fully expensed on the grant date.
Dividend equivalents for certain equity-based
awards are paid on stock units on a current basis
prior to vesting and distribution.
The 2017 Stock Incentive Plan, or 2017 Plan,
was approved by shareholders in May 2017 for
issuance of stock and stock based awards. Awards
may be made under the 2017 Plan for (i) up to 8.3
million shares of common stock plus (ii) up to an
additional 28.5 million shares that were available to
be issued under the 2006 Equity Incentive Plan, or
2006 Plan, or may become available for issuance
under the 2006 Plan due to expiration, termination,
cancellation,
forfeiture or repurchase of awards
granted under the 2006 Plan. As of December 31,
2020, a total of 20.5 million shares from the 2006
Plan have been added to and may be issued from the
2017 Plan.
The following table presents the cumulative total
number of shares that was awarded under the 2017
Plan and the 2006 Plan for the periods indicated:
As of December 31,
(In millions)
2020
2019
2018
Total number of shares awarded under
the 2006 Plan
Total number of shares awarded under
the 2017 Plan
68.9
68.9
68.9
11.3
7.6
3.9
The 2017 Plan allows for shares withheld in
payment of the exercise price of an award or in
satisfaction of tax withholding requirements, shares
forfeited due to employee termination, shares expired
under option awards, or shares not delivered when
performance conditions have not been met, to be
added back to the pool of shares available for
issuance under the 2017 Plan. From inception to
December 31, 2020, 1.7 million shares had been
awarded under the 2017 Plan but not delivered, and
have become available
re-issue. As of
December 31, 2020, a total of 19.2 million shares
were available for future issuance under the 2017
Plan.
for
For deferred stock awards granted under the
Plans, no common stock is issued at the time of grant
and the award does not possess dividend and voting
rights. Generally, these grants vest over one to four
years. Performance awards granted are earned over
a performance period based on the achievement of
defined goals, generally over three years. Payment
for performance awards is made in shares of our
common stock equal to its fair market value per
share, based on the performance of certain financial
ratios, after the conclusion of each performance
period.
Beginning with 2012, malus-based forfeiture
provisions were included in deferred stock awards
granted to employees identified as “material risk-
takers,” as defined by management. These malus-
State Street Corporation | 176
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that
risks
resulted
based forfeiture provisions provide for the reduction
or cancellation of unvested deferred compensation,
such as deferred stock awards and performance
based awards, if it is determined that a material risk-
taker made risk-based decisions that exposed us to
inappropriate
in a material
unexpected loss at the business-unit, line-of-business
or corporate level. In addition, awards granted to
certain of our senior executives, as well as awards
granted to individuals in certain jurisdictions, may be
subject to recoupment after vesting (if applicable) and
delivery to the individual in specified circumstances
generally relating to fraud or willful misconduct by the
individual that results in material harm to us or a
material financial restatement.
Compensation expense related to deferred stock
awards and performance awards, which we record as
a component of compensation and employee benefits
expense in our consolidated statement of income,
was $240 million, $235 million and $262 million for
the years ended December 31, 2020, 2019 and 2018,
respectively. Such expense for 2020, 2019 and 2018
excluded an expense of $29 million, a release of $4
million and an expense of $45 million, respectively,
associated with acceleration of expense in connection
with targeted staff reductions. This expense was
included in the severance-related portion of the
associated restructuring or repositioning charges
recorded in each respective year.
For the years ended December 31, 2020, 2019
and 2018, no stock appreciation
rights were
exercised. As of December 31, 2020, there was no
unrecognized compensation cost related to stock
appreciation rights.
Shares
(In thousands)
Weighted-Average
Grant Date Fair
Value
Deferred Stock Awards:
Outstanding as of
December 31, 2018
Granted
Vested
Forfeited
Outstanding as of
December 31, 2019
Granted
Vested
Forfeited
Outstanding as of
December 31, 2020
5,975 $
3,168
(3,089)
(220)
5,834
2,926
(2,938)
(136)
5,686
77.07
66.68
71.20
75.85
74.33
63.56
71.33
71.79
69.70
The total fair value of deferred stock awards
vested for the years ended December 31, 2020, 2019
and 2018, based on the weighted average grant date
fair value in each respective year, was $210 million,
$220 million and $230 million, respectively. As of
December
unrecognized
compensation cost related to deferred stock awards,
net of estimated forfeitures, was $199 million, which
is expected to be recognized over a weighted-
average period of 2.3 years.
2020,
total
31,
Performance Awards:
Outstanding as of
December 31, 2018
Granted
Forfeited
Paid out
Outstanding as of
December 31, 2019
Granted
Forfeited
Paid out
Outstanding as of
December 31, 2020
Shares
(In thousands)
Weighted-Average
Grant Date Fair Value
2,157 $
510
(96)
(432)
2,139
811
(23)
(410)
2,517
69.36
66.04
74.82
51.01
71.82
62.58
94.91
73.10
68.42
The total fair value of performance awards
vested for the years ended December 31, 2020, 2019
and 2018, based on the weighted average grant date
fair value in each respective year, was $30 million,
$22 million and $32 million, respectively. As of
December
unrecognized
compensation cost related to performance awards,
net of estimated forfeitures, was $26 million, which is
expected to be recognized over a weighted-average
period of 1.6 years.
2020,
total
31,
to meet
We utilize either treasury shares or authorized
but unissued shares to satisfy the issuance of
common stock under our equity incentive plans. We
do not have a specific policy concerning purchases of
our common stock to satisfy stock issuances. We
have a general policy concerning purchases of our
issuances under our
common stock
employee benefit plans, including other corporate
purposes. Various factors determine the amount and
timing of our purchases of our common stock,
including regulatory reviews and approvals or non-
objections, our regulatory capital requirements, the
number of shares we expect to issue under employee
benefit plans, market conditions (including the trading
price of our common stock), and legal considerations.
These factors can change at any time, and the
number of shares of common stock we will purchase
or when we will purchase them cannot be assured.
Additional information on our common stock purchase
program is provided in Note 15.
State Street Corporation | 177
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19. Employee Benefits
Defined Benefit Pension and Other Post-
Retirement Benefit Plans
State Street Bank and certain of
its U.S.
subsidiaries participate in a non-contributory, tax-
qualified defined benefit pension plan. The U.S.
defined benefit pension plan was frozen as of
December 31, 2007 and no new employees were
eligible to participate after that date. We have agreed
to contribute sufficient amounts as necessary to meet
the benefits paid to plan participants and to fund the
plan’s service cost, plus interest. U.S. employee
account balances earn annual interest credits until
the employee begins receiving benefits. Non-U.S.
employees participate in local defined benefit plans
which are
local
jurisdiction. In addition to the defined benefit pension
plans, we have non-qualified unfunded SERPs that
provide certain officers with defined pension benefits
in excess of allowable qualified plan limits. State
Street Bank and certain of its U.S. subsidiaries also
participate in a post-retirement plan that provides
health care benefits for certain retired employees.
The total expense for these tax-qualified and non-
qualified plans was $25 million, $8 million and $11
million in 2020, 2019 and 2018, respectively.
funded as
in each
required
and
equities
high-quality
We recognize the funded status of our defined
benefit pension plans and other post-retirement
benefit plans, measured as the difference between
the fair value of the plan assets and the projected
benefit obligation, in the consolidated statement of
position. The assets held by the defined benefit
pension plans are largely made up of common,
collective funds that are liquid and invest principally in
fixed-income
U.S.
investments. The majority of these assets fall within
Level 2 of the fair value hierarchy. The benefit
obligations associated with our primary U.S. and non-
U.S. defined benefit plans, non-qualified unfunded
supplemental retirement plans and post-retirement
plans were $1.53 billion, $69 million and $4 million,
respectively, as of December 31, 2020 and $1.37
billion, $88 million and $10 million, respectively, as of
December 31, 2019. As the primary defined benefit
plans are frozen, the benefit obligation will only vary
over time as a result of changes in market interest
rates, the life expectancy of the plan participants and
payments made from the plans. The primary U.S. and
non-U.S. defined benefit pension plans were
underfunded by $15 million and overfunded by $10
million as of December 31, 2020 and 2019,
supplemental
respectively.
retirement plans were underfunded by $69 million and
$88 million as of December 31, 2020 and 2019,
respectively. The other post-retirement benefit plans
were underfunded by $4 million and $10 million as of
non-qualified
The
December 31, 2020 and 2019, respectively. The
underfunded status is included in other liabilities.
Defined Contribution Retirement Plans
We contribute to employer-sponsored U.S. and
non-U.S. defined contribution plans. Our contribution
to these plans was $168 million, $167 million and
$170 million in 2020, 2019 and 2018, respectively.
Note 20. Occupancy Expense and Information
Systems and Communications Expense
Upon adoption of Topic 842 on January 1, 2019,
we recognized right-of-use assets of approximately
$0.91 billion and lease liabilities of approximately
$1.06 billion.
leasehold
improvements,
Occupancy expense and information systems
and communications expense include depreciation of
buildings,
computer
hardware and software, equipment, furniture and
fixtures, and amortization of lease right-of-use assets.
Total depreciation and amortization expense in 2020,
2019 and 2018 was $858 million, $842 million and
$599 million,
a
respectively. We
repositioning charge of $51 million in occupancy
expenses
in 2020, consisting of a $46 million
impairment of right-of-use assets and consisting of
$5 million for one-time repairs.
recorded
We use our incremental borrowing rate to
determine the present value of the lease payments
for finance and operating leases described below.
Additionally, we do not
separate nonlease
components such as real estate taxes and common
area maintenance from base lease payments.
As of December 31, 2020 and 2019, an
aggregate net book value of $55 million and $78
million, respectively, for the finance lease related to
our One Lincoln Street Boston headquarters was
recorded in premises and equipment, with the related
liability of $103 million and $136 million, respectively,
recorded in long-term debt, in our consolidated
statement of condition.
Finance lease right-of-use asset amortization is
recorded in occupancy expense on a straight-line
basis in our consolidated statement of income over
the respective lease term. As of December 31, 2020,
accumulated amortization of the finance lease right-
of-use asset was $75 million. Lease payments are
recorded as a reduction of the liability, with a portion
recorded as imputed interest expense. In 2020 and
2019, interest expense related to the finance lease
obligation reflected in NII was $9 million and $11
million, respectively.
As of December 31, 2020, an aggregate net
book value of $720 million for the operating lease
right-of-use assets is recorded in other assets, with
the related lease liability of $891 million recorded in
State Street Corporation | 178
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accrued expenses and other
consolidated statement of condition.
liabilities
in our
We have entered into non-cancellable operating
leases for premises and equipment. Nearly all of
these leases include renewal options, and only those
reasonably certain of being exercised are included in
the term of the lease. Costs for operating leases are
recorded on a straight-line basis which includes both
interest expense and right-of-use asset amortization.
Operating lease costs for office space are recorded in
to operating
occupancy expense. Costs related
leases for equipment are recorded in information
systems and communications expense.
As of December 31, 2020, we have additional
operating leases, primarily for office space, that have
not yet commenced of approximately $462 million of
undiscounted future minimum lease payments. These
leases will commence between fiscal year 2021 and
fiscal year 2023 with lease terms of 10 to 15 years.
The majority of these future payments relate to the
new Boston headquarters lease executed in the first
quarter of 2019, replacing the One Lincoln Street
Boston property.
None of our leases contain residual value
guarantees.
The
following
lease costs,
sublease rental income, cash flows and new leases
arising from lease transactions for 2020:
table presents
(In millions)
Finance lease:
Years Ended December 31,
2020
2019
Amortization of right-of-use
assets
$
20 $
Interest on lease liabilities
Total finance lease expense
Sublease income
Net finance lease expense
Operating lease:
Operating lease expense
Sublease income
Net operating lease expense
9
29
(11)
18
169
(16)
153
Net lease expense
$
171 $
Cash paid for amounts
included in the
measurement of lease
liabilities:
Operating cash flows from
finance leases
$
Operating cash flows from
operating leases
Financing cash flows from
finance leases
Right-of-use assets obtained
in exchange for new lease
obligations:
Operating leases
$
Finance leases
9 $
192
33
38 $
—
21
11
32
(9)
23
179
(6)
173
196
11
201
54
120
—
The following table presents future minimum
lease payments under non-cancellable leases as of
December 31, 2020:
(In millions)
Operating
Leases
Finance
Leases
Total
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease
payments
Less imputed interest
$
186 $
41 $
167
147
112
93
275
980
(89)
41
31
—
—
—
113
(10)
Total
$
891 $
103 $
227
208
178
112
93
275
1,093
(99)
994
The following table presents details related to
remaining lease terms and discount rate as of
December 31, 2020:
Weighted-average remaining
lease term (in years):
Finance leases
Operating leases
Weighted-average discount rate:
Finance leases
Operating leases
Note 21. Expenses
December 31,
2020
December 31,
2019
2.7
7.1
7 %
3 %
3.8
7.6
7 %
3 %
The following table presents the components of
other expenses for the periods indicated:
(In millions)
2020
2019
2018
Years Ended December 31,
Professional services
$
364 $
321 $
Sales advertising public relations
Regulatory fees and assessments
Securities processing
Donations
Bank operations
Insurance
Other
77
61
41
20
18
14
114
73
75
51
43
19
357
115
91
52
12
70
18
370
566
461
Total other expenses
$
965 $
1,262 $
1,176
Acquisition Costs
We recorded approximately $54 million of
acquisition costs in 2020 compared to $79 million in
to our
2019 and $31 million
acquisition of CRD.
in 2018, related
State Street Corporation | 179
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restructuring and Repositioning Charges
Repositioning Charges
recorded $133 million of
In 2020, we
repositioning charges,
including $82 million of
compensation and employee benefits and $51 million
of occupancy expenses, to further drive automation of
processes and organizational simplification enabling
workforce rationalization and to reduce our real estate
footprint by approximately 13% of our total square
footage.
In 2019, we
recorded $110 million of
repositioning charges,
including $98 million of
compensation and employee benefits expenses and
$12 million of occupancy costs, to further drive
technology
process
optimizations and organization rationalization in 2020.
automation,
information
The following table presents aggregate activity
for repositioning charges and activity related to
previous Beacon restructuring charges for the periods
indicated:
(In millions)
Accrual Balance at
December 31, 2017
Accruals for Beacon
Accruals for
Repositioning
Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2018
Accruals for Beacon
Accruals for
Repositioning
Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2019
Accruals for Beacon
Accruals for
Repositioning
Charges
Payments and Other
Adjustments
Accrual Balance at
December 31, 2020
Employee
Related
Costs
Real
Estate
Actions
Asset and
Other
Write-offs
Total
$
166 $
32 $
3 $
201
(7)
259
—
41
(115)
(36)
303
(2)
98
37
—
12
(209)
(42)
190
(4)
82
(78)
7
—
51
(52)
—
—
(2)
1
—
—
—
1
—
—
(1)
(7)
300
(153)
341
(2)
110
(251)
198
(4)
133
(131)
$
190 $
6 $
— $
196
Note 22. Income Taxes
for
income
taxes. Our objective
We use an asset-and-liability approach
is
to
account
to
recognize the amount of taxes payable or refundable
for the current year through charges or credits to the
current tax provision, and to recognize deferred tax
assets and liabilities for future tax consequences of
temporary differences between amounts reported in
their
our consolidated
respective tax bases. The measurement of tax assets
and liabilities is based on enacted tax laws and
applicable tax rates. The effects of a tax position on
our consolidated financial statements are recognized
financial statements and
when we believe it is more likely than not that the
position will be sustained. A valuation allowance is
established if it is considered more likely than not that
all or a portion of the deferred tax assets will not be
realized. Deferred tax assets and liabilities recorded
in our consolidated statement of condition are netted
within the same tax jurisdiction.
The following table presents the components of
the periods
(benefit)
tax expense
for
income
indicated:
(In millions)
2020
2019
2018
Years Ended December 31,
Current:
Federal
State
Non-U.S.
Total current expense
Deferred:
Federal
State
Non-U.S.
Total deferred expense (benefit)
Total income tax expense
(benefit)
$
241 $
157 $
122
310
673
(168)
5
(31)
(194)
86
357
600
(6)
33
(157)
(130)
122
148
374
644
(128)
(22)
14
(136)
$
479 $
470 $
508
The following table presents a reconciliation of
the U.S. statutory income tax rate to our effective tax
rate based on income before income tax expense for
the periods indicated:
U.S. federal income tax rate
21.0 %
21.0 %
21.0 %
Years Ended December 31,
2020
2019
2018
Changes from statutory rate:
State taxes, net of federal benefit
Tax-exempt income
Business tax credits(1)
Foreign tax differential
Foreign legal entity restructuring
3.8
(1.3)
(5.1)
(0.8)
—
Foreign tax credit (benefits)/ limitations
(0.9)
Deferred tax revaluation
Litigation expense
Other, net
Effective tax rate
—
—
(0.2)
3.4
(1.5)
(5.4)
(0.1)
(4.3)
2.2
—
1.6
0.4
3.1
(2.0)
(4.1)
(0.6)
—
0.2
(1.0)
0.3
(0.6)
16.5 %
17.3 %
16.3 %
(1) Business tax credits include low-income housing, production and
investment tax credits.
As of December 31, 2018, the accounting for
income tax effects of the TCJA was completed and
the 2018 income tax expense included an additional
deferred tax benefit of approximately $32 million.
Beginning in 2018, the TCJA subjects a U.S.
shareholder to current tax on Global Intangible Low-
Taxed Income (GILTI) earned by certain foreign
subsidiaries. We have elected to recognize our tax on
GILTI as a period expense in the period the tax is
incurred. As such, we have included an estimate of
this liability in our estimated annual effective tax rate.
This adjustment increased our effective tax rate by
State Street Corporation | 180
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
0.2%, 0.3% and 0.2% in 2020, 2019 and 2018,
respectively, which
the prior
"Foreign Tax Credit
reconciliation
(Benefits)/Limitations".
table under
reflected
in
is
foreign
amounted
foreign withholding
Undistributed indefinitely reinvested earnings of
certain
to
subsidiaries
approximately $5.8 billion at December 31, 2020. As
a result, no provision has been recorded for state and
local or
If a
distribution were to occur, we would be subject to
state, local and to foreign withholding tax. It is
expected that any distribution will be exempt from
federal income tax. Although the foreign withholding
tax is generally creditable against U.S. federal income
tax, certain credit utilization limitations may result in a
net cost.
income
taxes.
The
following
significant
components of our gross deferred tax assets and
gross deferred tax liabilities as of the dates indicated:
table presents
(In millions)
Deferred tax assets:
Other amortizable assets
Tax credit carryforwards
Lease obligations
Deferred compensation
Restructuring charges and other reserves
NOL and other carryforwards
Pension plan
Foreign currency translation
Total deferred tax assets
Valuation allowance for deferred tax assets
Deferred tax assets, net of valuation
allowance
Deferred tax liabilities:
Fixed and intangible assets
Investment basis differences
Right-of-use Assets
Unrealized gains on investment securities,
net
Other
$
$
December 31,
2020
2019
$
385 $
564
243
110
129
101
56
3
394
387
254
120
104
73
66
57
1,591
(295)
1,455
(330)
1,296 $
1,125
765 $
269
187
321
51
763
258
223
86
32
valuation allowance is not required for the remaining
deferred tax assets because it is more likely than not
that there will be sufficient taxable income of the
appropriate nature within the carryforward periods to
realize these assets.
At December 31, 2020, 2019 and 2018, the
gross unrecognized tax benefits, excluding interest,
were $308 million, $149 million and $108 million,
respectively. Of this, the amounts that would reduce
the effective tax rate, if recognized, are $294 million,
$140 million and $100 million, respectively. The
reduction in the effective tax rate includes the federal
benefit for unrecognized state tax benefits.
The following table presents activity related to
unrecognized tax benefits as of the dates indicated:
(In millions)
Beginning balance
Decrease related to agreements with
tax authorities
Increase related to tax positions
taken during current year
Increase related to tax positions
taken during prior years
Decreases related to a lapse of the
applicable statute of limitations
December 31,
2020
2019
2018
$
149 $
108 $
94
—
47
137
(17)
(40)
13
49
12
44
(25)
(4)
(2)
Ending balance
$
308 $
149 $
108
It is reasonably possible that of the $308 million
of unrecognized tax benefits as of December 31,
2020, up to $104 million could decrease within the
next 12 months due to the resolution of various
audits. Management believes that we have sufficient
accrued liabilities as of December 31, 2020 for tax
exposures and related interest expense.
Income tax expense included related interest
and penalties of approximately $6 million, $5 million
and $1 million in 2020, 2019 and 2018, respectively.
Total
penalties were
approximately $14 million, $10 million and $8 million
as of December 31, 2020, 2019 and 2018,
respectively.
accrued
interest
and
Total deferred tax liabilities
$
1,593 $
1,362
The table below summarizes the deferred tax
assets and related valuation allowances recognized
as of December 31, 2020:
(In millions)
Other amortizable
assets
Tax credits
NOLs - Non-U.S.
Other carryforwards
NOLs - State
Deferred
Tax Asset
Valuation
Allowance
Expiration
$
385 $
(233) __
564
65
19
17
— 2038-2040
(40) 2026-2031, None
(5) None
(17) 2021-2040
Management considers the valuation allowance
adequate to reduce the total deferred tax assets to an
aggregate amount that will more likely than not be
that a
realized. Management has determined
Note 23. Earnings Per Common Share
Basic EPS is calculated pursuant to the two-
class method, by dividing net income available to
the weighted-average
common shareholders by
common shares outstanding during
the period.
Diluted EPS is calculated pursuant to the two-class
method, by dividing net income available to common
shareholders by the total weighted-average number
of common shares outstanding for the period plus the
shares representing the dilutive effect of equity-based
is
awards. The effect of equity-based awards
excluded from the calculation of diluted EPS in
periods in which their effect would be anti-dilutive.
State Street Corporation | 181
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The two-class method requires the allocation of
undistributed net
income between common and
participating shareholders. Net income available to
common shareholders, presented separately in our
consolidated statement of income, is the basis for the
calculation of both basic and diluted EPS.
Participating securities are composed of unvested
and fully vested SERP shares and fully vested
deferred director stock awards, which are equity-
based awards that contain non-forfeitable rights to
dividends, and are considered to participate with the
common stock in undistributed earnings.
The following table presents the computation of
basic and diluted earnings per common share for the
periods indicated:
(Dollars in millions, except per
share amounts)
Net income
Less:
Years Ended December 31,
2020
2019
2018
$
2,420
$
2,242
$
2,593
Preferred stock dividends
(162)
(232)
(188)
Dividends and undistributed
earnings allocated to participating
securities(1)
Net income available to common
shareholders
Average common shares
outstanding (In thousands):
(1)
(1)
(1)
$
2,257
$
2,009
$
2,404
Basic average common shares
352,865
369,911
371,983
Effect of dilutive securities: equity-
based awards
4,241
3,755
4,493
Diluted average common shares
357,106
373,666
376,476
Anti-dilutive securities(2)
1,066
2,052
1,011
Earnings per common share:
Basic
Diluted(3)
$
6.40
$
5.43
$
6.32
5.38
6.46
6.39
(1) Represents the portion of net income available to common equity allocated to
participating securities, composed of unvested and fully vested SERP (Supplemental
executive retirement plans) shares and fully vested deferred director stock awards, which
are equity-based awards that contain non-forfeitable rights to dividends, and are
considered to participate with the common stock in undistributed earnings.
(2) Represents equity-based awards outstanding but not included in the computation of
diluted average common shares, because their effect was anti-dilutive. Additional
information about equity-based awards is provided in Note 18.
(3) Calculations reflect allocation of earnings to participating securities using the two-class
method, as this computation is more dilutive than the treasury stock method.
Note 24. Line of Business Information
Our operations are organized into two lines of
Investment
Investment Servicing and
business:
Management, which are defined based on products
and services provided. The results of operations for
these
lines of business are not necessarily
comparable with those of other companies, including
companies in the financial services industry.
Investment Servicing,
through State Street
Institutional Services, State Street Global Markets,
State Street Global Exchange and CRD, provides
services for U.S. mutual funds, collective investment
regulation);
retirement plans,
funds and other investment pools, corporate and
public
insurance companies,
foundations and endowments worldwide. Products
include: custody; product accounting; daily pricing
and administration; master trust and master custody;
depotbank services (a fund oversight role created by
cash
non-U.S.
management; foreign exchange, brokerage and other
trading services; securities finance and enhanced
custody products; deposit and short-term investment
investment
lease
facilities;
financing;
investment manager
manager and alternative
operations outsourcing; performance,
risk and
compliance analytics; and financial data management
to support institutional investors.
record-keeping;
loans and
is designed
technology offering which
Included within our Investment Servicing line of
business is CRD, which we acquired in October 2018.
The Charles River Investment Management solution
is a
to
automate and simplify the institutional investment
process across asset classes,
from portfolio
management and risk analytics through trading and
post-trade settlement, with integrated compliance and
managed data throughout. With the acquisition of
CRD, we took the first step in building our front-to-
back platform, State Street Alpha. Today our State
Street
portfolio
management, trading and execution, advanced data
aggregation, analytics and compliance tools, and
integration with other
industry platforms and
providers.
combines
platform
Alpha
investment strategies. Our AUM
Investment Management, through State Street
range of
Global Advisors, provides a broad
investment management strategies and products for
our clients. Our investment management strategies
and products span the risk/reward spectrum for
equity, fixed income and cash assets, including core
and enhanced indexing, multi-asset strategies, active
quantitative and fundamental active capabilities and
alternative
is
currently primarily weighted to indexed strategies. In
addition, we provide a breadth of services and
solutions,
including environmental, social and
governance investing, defined benefit and defined
contribution and Global Fiduciary Solutions (formerly
Outsourced Chief Investment Officer). State Street
Global Advisors is also a provider of ETFs, including
the SPDR® ETF brand. While management fees are
primarily determined by the values of AUM and the
investment strategies employed, management fees
reflect other factors as well, including the benchmarks
specified in the respective management agreements
related to performance fees.
State Street Corporation | 182
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our investment servicing strategy is to focus on total client relationships and the full integration of our products
and services across our client base through cross-selling opportunities. In general, our clients will use a combination
of services, depending on their needs, rather than one product or service. For instance, a custody client may
purchase securities finance and cash management services from different business units. Products and services
that we provide to our clients are parts of an integrated offering to these clients. We price our products and services
on the basis of overall client relationships and other factors; as a result, revenue may not necessarily reflect the
stand-alone market price of these products and services within the business lines in the same way it would for
separate business entities.
Our servicing and management fee revenue from the Investment Servicing and Investment Management
business lines, including foreign exchange trading services and securities finance activities, represents
approximately 70% to 80% of our consolidated total revenue. The remaining 20% to 30% is composed of software
and processing fees, including CRD, as well as NII, which is largely generated by our investment of client deposits,
short-term borrowings and long-term debt in a variety of assets, and net gains (losses) related to investment
securities. These other revenue types are generally fully allocated to, or reside in, Investment Servicing and
Investment Management.
Revenue and expenses are directly charged or allocated to our lines of business through management
information systems. Assets and liabilities are allocated according to policies that support management’s strategic
and tactical goals. Capital is allocated based on the relative risks and capital requirements inherent in each
business line, along with management judgment. Capital allocations may not be representative of the capital that
might be required if these lines of business were separate business entities.
The following is a summary of our line of business results "Other" column for the periods indicated.
(Dollars in millions)
Net repositioning charges
Net acquisition and restructuring costs
Accrual release
Legal and related expenses
Business exit costs
Total
Years Ended December 31,
2020
Other
2019
2018
133 $
110 $
50
(9)
—
—
77
—
172
—
174 $
359 $
300
24
—
50
24
398
$
$
The following is a summary of our line of business results for the periods indicated. The amounts in the “Other”
columns were not allocated to our business lines. Prior reported results reflect reclassifications, for comparative
purposes, related to management changes in methodologies associated with allocations of revenue and expenses
to lines of business in 2020.
Investment
Servicing
Investment
Management
Years Ended December 31,
(Dollars in millions)
2020
2019
2018
2020
2019
2018
2020
Other
2019
2018
2020
Total
2019
2018
Servicing fees
$ 5,167
$ 5,074
$ 5,429
$ —
$ —
$ —
$
Management fees
Foreign exchange
trading services
Securities finance
Software and processing
fees(1)(2)
Total fee revenue(1)
—
1,299
342
706
—
974
462
691
—
1,880
1,824
1,899
1,071
543
443
64
14
27
84
9
29
82
—
(5)
7,514
7,201
7,486
1,985
1,946
1,976
Net interest income
2,211
2,590
2,691
(11)
(24)
(20)
4
43
6
—
—
—
9,729
9,834
10,183
1,974
1,922
1,956
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
(8) $ 5,167
$ 5,074
$ 5,421
—
1,880
1,824
1,899
—
—
—
1,363
1,058
1,153
356
733
471
720
543
438
(8)
9,499
9,147
9,454
—
—
2,200
2,566
2,671
4
43
6
(8)
11,703
11,756
12,131
88
10
15
—
—
—
7,071
7,140
7,081
1,471
1,535
1,544
—
174
—
359
—
88
10
15
390
8,716
9,034
9,015
$ 2,570
$ 2,684
$ 3,087
$ 503
$ 387
$ 412
$
(174) $
(359) $
(398) $ 2,899
$ 2,712
$ 3,101
Pre-tax margin
26 %
27 %
30 %
25 %
20 %
21 %
25 %
23 %
26 %
Average assets (in
billions)
$ 266.4
$ 220.3
$ 220.2
$ 2.9
$ 3.0
$ 3.2
$ 269.3
$ 223.3
$ 223.4
(1) Investment Servicing includes results from our acquisition of CRD on October 1, 2018.
(2) Investment Management includes other revenue items that are primarily driven by equity market movements.
State Street Corporation | 183
Total other income
Total revenue(1)
Provision for credit
losses
Total expenses(1)
Income before income
tax expense
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 25. Revenue from Contracts with Customers
We account for revenue from contracts with customers in accordance with Topic 606, which we adopted on
January 1, 2018. The amount of revenue that we recognize is measured based on the consideration specified in
contracts with our customers, and excludes taxes collected from customers subsequently remitted to governmental
authorities. We recognize revenue when a performance obligation is satisfied over time as the services are
performed or at a point in time depending on the nature of the services provided as further discussed below.
Revenue recognition guidance related to contracts with customers excludes our NII, revenue earned on security
lending transactions entered into as principal, realized gains/losses on securities, revenue earned on foreign
exchange activity, loans and related fees, and gains/losses on hedging and derivatives, to which we apply other
applicable U.S. GAAP guidance.
For contracts with multiple performance obligations, or contracts that have been combined, we allocate the
contracts' transaction price to each performance obligation using our best estimate of the standalone selling price.
Our contractual fees are negotiated on a customer by customer basis and are representative of standalone selling
price utilized for allocating revenue when there are multiple performance obligations.
Substantially all of our services are provided as a distinct series of daily performance obligations that the
customer simultaneously benefits from as they are performed. Payments may be made to third party service
providers and the expense is recognized gross when we control those services as we are deemed the principal.
Contract durations may vary from short to long- term or may be open ended. Termination notice periods are in
line with general market practice and typically do not include termination penalties. Therefore, for substantially all of
our revenues, the duration of the contract and the enforceable rights and obligations do not extend beyond the
services that are performed daily or at the transaction level. In instances where we have substantive termination
penalties, the duration of the contract may extend through the date of substantive termination penalties.
Investment Servicing
Revenue from contracts with customers related to servicing fees is recognized over time as our customers
benefit from the custody, administration, accounting, transfer agency and other related asset services as they are
performed. At contract inception, no revenue is estimated as the fees are dependent on assets under custody and/
or administration and/or actual transactions which are susceptible to market factors outside of our control.
Therefore, revenue is recognized using a time-based output method as the customers benefit from the services
over time and as the assets under custody or transactions are known or determinable during each reporting period
based on contractual fee schedules. Payments made to third party service providers, such as sub-custodians, are
generally recognized gross as we control those services and are deemed to be a principal in such arrangements.
Foreign exchange trading services revenue includes revenue generated from providing access and use of
electronic trading platforms and other trading, transition management and brokerage services. Electronic FX
services are dependent on the volume of actual transactions initiated through our electronic exchange platforms.
Revenue is recognized over time using a time-based measure as access to, and use of, the electronic exchange
platforms is made available to the customer and the activity is determinable. Revenue related to other trading,
transition management and brokerage services is recognized when the customer obtains the benefit of such
services which may be over time or at a point in time upon trade execution.
Securities finance revenue is related to services for providing agency lending programs to State Street Global
Advisors managed investment funds and third- party investment managers and asset owners. This securities
finance revenue is recognized over time using a time-based measure as our customers benefit from these lending
services over time.
Revenue related to the front office solutions provided by CRD is primarily driven by the sale of licenses and
software as service arrangements, including professional services such as consulting and implementation services,
software support and maintenance. Revenue for a sale of software to be installed on premise is recognized at a
point in time when the customer benefits from obtaining access to and use of the software license. Revenue for a
SaaS related arrangement is recognized over time as services are provided.
Investment Management
Revenue from contracts with customers related to investment management, investment research and
investment advisory services provided through State Street Global Advisors is recognized over time as our
customers benefit from the services as they are performed. Substantially all of our investment management fees are
determined by the value of assets under management and the investment strategies employed. At contract
inception, no revenue is estimated as the fees are dependent on assets under management which are susceptible
to market factors outside of our control.
State Street Corporation | 184
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Therefore, substantially all of our Investment Management services revenue is recognized using a time-based
output method as the customers benefit from the services over time and as the assets under management are
known or determinable during each reporting period based on contractual fee schedules. Payments made to third
party service providers, such as payments to others in unitary fee arrangements, are generally recognized on a
gross basis when State Street Global Advisors controls those services and is deemed to be a principal in such
transactions.
Revenue by category
In the following table, revenue is disaggregated by our two lines of business and by revenue stream for which
the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The
amounts in the "Other" columns were not allocated to our business lines.
(Dollars in millions)
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income
Total other income
Total revenue
(Dollars in millions)
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income
Total other income
Total revenue
Year Ended December 31, 2020
Investment Servicing
Investment Management
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
Other
All other
revenue
Total
Total
2020
$ 5,167 $
— $ 5,167 $
— $
— $
— $
— $
— $
— $ 5,167
—
377
212
487
6,243
—
—
—
922
130
219
1,271
2,211
4
—
1,880
1,299
342
706
7,514
2,211
4
64
—
—
1,944
—
—
—
—
14
27
41
(11)
—
1,880
64
14
27
1,985
(11)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,880
1,363
356
733
9,499
2,200
4
$ 6,243 $ 3,486 $ 9,729 $ 1,944 $
30 $ 1,974 $
— $
— $
— $ 11,703
Year Ended December 31, 2019
Investment Servicing
Investment Management
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
Other
All other
revenue
Total
Total
2019
$ 5,074 $
— $ 5,074 $
— $
— $
— $
— $
— $
— $ 5,074
—
346
259
456
6,135
—
—
—
628
203
235
1,066
2,590
43
—
974
462
691
7,201
2,590
43
1,824
84
—
—
1,908
—
—
—
—
9
29
38
(24)
—
1,824
84
9
29
1,946
(24)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,824
1,058
471
720
9,147
2,566
43
$ 6,135 $ 3,699 $ 9,834 $ 1,908 $
14 $ 1,922 $
— $
— $
— $ 11,756
(Dollars in millions)
Servicing fees
Management fees
Foreign exchange trading services
Securities finance
Software and processing fees
Total fee revenue
Net interest income
Total other income
Total revenue
Year Ended December 31, 2018
Investment Servicing
Investment Management
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
All other
revenue
Total
Topic
606
revenue
Other
All other
revenue
Total
Total
2018
$ 5,429 $
— $ 5,429 $
— $
— $
— $
(8) $
— $
(8) $ 5,421
—
361
308
209
6,307
—
—
—
710
235
234
1,179
2,691
6
—
1,899
1,071
543
443
7,486
2,691
6
82
—
—
1,981
—
—
—
—
—
(5)
(5)
(20)
—
1,899
82
—
(5)
1,976
(20)
—
—
—
—
—
(8)
—
—
—
—
—
—
—
—
—
—
—
—
—
(8)
—
—
1,899
1,153
543
438
9,454
2,671
6
$ 6,307 $ 3,876 $ 10,183 $ 1,981 $
(25) $ 1,956 $
(8) $
— $
(8) $ 12,131
Contract balances and contract costs
As of December 31, 2020 and December 31, 2019, net receivables of $2.68 billion and $2.77 billion,
respectively, are included in accrued interest and fees receivable, representing amounts billed or currently billable
related to revenue from contracts with customers. As performance obligations are satisfied, we have an
unconditional right to payment and billing is generally performed monthly; therefore, we do not have significant
contract assets or liabilities.
State Street Corporation | 185
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No adjustments are made to the promised amount of consideration for the effects of a significant financing
component as the period between when we transfer a promised service to a customer and when the customer pays
for that service is expected to be one year or less.
Note 26. Non-U.S. Activities
We define our non-U.S. activities as those revenue-producing business activities that arise from clients which
are generally serviced or managed outside the U.S. Due to the integrated nature of our business, precise
segregation of our U.S. and non-U.S. activities is not possible.
Subjective estimates, assumptions and other judgments are applied to quantify the financial results and assets
related to our non-U.S. activities, including our application of funds transfer pricing, our asset and liability
management policies and our allocation of certain indirect corporate expenses. Management periodically reviews
and updates its processes for quantifying the financial results and assets related to our non-U.S. activities.
The following table presents our U.S. and non-U.S. financial results for the periods indicated:
(In millions)
Total revenue
Income before income tax
expense
Years Ended December 31,
Non-U.S.(1)
2020
U.S.
Total
Non-U.S.(1)
2019
U.S.
Total
Non-U.S.(1)
2018
U.S.
Total
$
5,252 $ 6,451 $ 11,703 $
5,230 $ 6,526 $ 11,756 $
5,190 $ 6,941 $ 12,131
1,146
1,753
2,899
1,248
1,464
2,712
1,294
1,807
3,101
(1) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
Non-U.S. assets were $111.30 billion and $83.28 billion as of December 31, 2020 and 2019, respectively.
Note 27. Parent Company Financial Statements
The following tables present the financial statements of the Parent Company without consolidation of its
banking and non-banking subsidiaries, as of and for the years indicated:
Statement of Income - Parent Company
(In millions)
Years Ended December 31,
2020
2019
2018
Cash dividends from consolidated banking subsidiary
$
2,721 $
3,300 $
Cash dividends from consolidated non-banking subsidiaries and unconsolidated
entities
Other, net
Total revenue
Interest expense
Other expenses
Total expenses
Income tax (benefit)
Income before equity in undistributed income of consolidated subsidiaries and
unconsolidated entities
Equity in undistributed income of consolidated subsidiaries and unconsolidated
entities:
Consolidated banking subsidiary
Consolidated non-banking subsidiaries and unconsolidated entities
Net income
118
92
2,931
324
172
496
(109)
285
149
3,734
415
108
523
(91)
2,544
3,302
(277)
153
(1,070)
10
$
2,420 $
2,242 $
785
41
58
884
381
162
543
(127)
468
1,944
181
2,593
State Street Corporation | 186
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Condition - Parent Company
(In millions)
Assets:
Interest-bearing deposits with consolidated banking subsidiary
Trading account assets
Investment securities available-for-sale
Investments in subsidiaries:
Consolidated banking subsidiary
Consolidated non-banking subsidiaries
Unconsolidated entities
Notes and other receivables from:
Consolidated banking subsidiary
Consolidated non-banking subsidiaries and unconsolidated entities
Other assets
Total assets
Liabilities:
Accrued expenses and other liabilities
Long-term debt
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Statement of Cash Flows - Parent Company
As of December 31,
2020
2019
492 $
412
100
26,204
8,807
124
81
3,885
277
40,382 $
557 $
13,625
14,182
26,200
40,382 $
428
393
250
25,451
7,240
117
—
3,361
270
37,510
696
12,383
13,079
24,431
37,510
$
$
$
$
(In millions)
Net cash provided by operating activities
Investing Activities:
Net decrease (increase) in interest-bearing deposits with consolidated banking
subsidiary
Proceeds from sales and maturities of available-for-sale securities
Purchases of available-for-sale securities
Investments in consolidated banking and non-banking subsidiaries
Sale or repayment of investment in consolidated banking and non-banking
subsidiaries
Net cash (used in) provided by investing activities
Financing Activities:
Proceeds from issuance of long-term debt, net of issuance costs
Payments for long-term debt
Proceeds from issuance of preferred stock, net of issuance costs
Proceeds from issuance of common stock, net of issuance costs
Payments for redemption of preferred stock
Repurchases of common stock
Repurchases of common stock for employee tax withholding
Payments for cash dividends
Net cash provided (used in) financing activities
Net change
Cash and due from banks at beginning of year
Cash and due from banks at end of year
Note 28. Subsequent Events
Years Ended December 31,
2020
2019
2018
$
3,513 $
2,684 $
2,250
(64)
1,000
(849)
(7,406)
4,999
(2,320)
2,489
(1,700)
—
—
(500)
(515)
(78)
(889)
(1,193)
—
—
— $
58
900
(921)
(6,165)
5,345
(783)
1,495
(50)
—
—
(750)
(1,585)
(81)
(930)
(1,901)
—
—
— $
46
—
(224)
(4,883)
2,472
(2,589)
996
(1,000)
495
1,150
—
(350)
(124)
(828)
339
—
—
—
$
On January 14, 2021, we announced that we will redeem on March 15, 2021 an aggregate of $500 million, or
5,000 of the 7,500 outstanding shares of our non-cumulative perpetual preferred stock, Series F, for cash at a
redemption price of $100,000 per share (equivalent to $1,000 per depositary share) plus all declared and unpaid
dividends. A cash dividend of $953.38 per share of Series F Preferred Stock (or approximately $9.5338 per
depositary share) has been declared for the period from December 15, 2020 up to but not including March 15, 2021
(the “March Dividend”). The March Dividend will be paid separately to the holders of record of the Series F
Preferred Stock as of March 1, 2021 in the customary manner. Accordingly, there will not be any declared and
unpaid dividends included in the redemption price.
State Street Corporation | 187
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
Distribution of Average Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential
(Unaudited)
The following table presents consolidated average statements of condition and NII for the years indicated:
(Dollars in millions; fully
taxable-equivalent basis)
Assets:
2020
2019
2018
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Years Ended December 31,
Interest-bearing deposits with U.S. banks
$
30,866 $
101
.33 % $
16,815 $
360
2.14 % $
18,081 $
345
1.91 %
Interest-bearing deposits with non-U.S. banks
45,722
(25)
(.06)
31,685
56
.18
36,247
42
.12
Securities purchased under resale
agreements
Trading account assets
Investment securities:
U.S. Treasury and federal agencies(1)
State and political subdivisions(1)
Other investments
Investment securities held-to-maturity
purchased under money market
liquidity facility
Loans
Lease financing(1)
Other interest-earning assets
Total interest-earning assets(1)
Cash and due from banks
Other assets
Total assets
Liabilities and shareholders’ equity:
Interest-bearing deposits:
Time
Savings
Non-U.S.
Total interest-bearing deposits
Securities sold under repurchase agreements
2,615
Short-term borrowings under money
market liquidity facility
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Total interest-bearing liabilities
Non-interest-bearing deposits:
Special time
Demand
Non-U.S.(2)
Other liabilities
Shareholders’ equity
8,207
2,226
14,371
3,176
186,845
7,196
29,187
592
20,464
25,050
3,452
878
126
—
60,816
1,174
1,717
38,459
8,183
27,525
—
11,256
51
366
117
627
—
55
3.64
—
1.93
2.95
.95
1.43
2.28
—
.49
2,506
884
56,639
1,869
33,260
—
24,073
—
14,160
228,874
2,592
1.13
181,891
3,960
364
14.54
1
.11
335
11.55
—
—
1,443
62
504
—
775
—
395
2.55
3.31
1.51
—
3.22
—
2.79
2.18
2,901
1,051
48,449
5,481
34,140
—
23,147
426
15,714
1,178
189
560
—
687
11
372
2.43
3.45
1.64
—
2.97
2.53
2.37
2.00
185,637
3,719
3,178
34,570
$ 223,385
3,390
38,053
$ 223,334
.32 % $
20,443 $
3,849
36,611
$ 269,334
$
7,114 $
80,330
68,806
156,250
23
91
(231)
(117)
4
101
18
312
57
375
.11
(.34)
(.07)
.14
1.22
.78
2.17
1.82
.20
47,104
61,301
128,848
1,616
—
1,524
11,474
4,103
222
317
124
663
31
—
21
414
246
147,565
1,375
15,338
13,552
524
21,299
25,056
121
135
107
363
13
—
17
389
209
991
.71 %
.36
.15
.29
.62
—
1.28
3.64
4.20
.68
1.08 % $
17,081 $
.67
.20
.51
1.90
—
1.37
3.61
6.00
.93
37,872
70,623
125,576
2,048
—
1,327
10,686
4,956
144,593
19,187
16,260
385
19,804
23,156
Total liabilities and shareholders’ equity
$ 269,334
$ 223,334
$ 223,385
Net interest income, fully taxable-equivalent
basis
Excess of rate earned over rate paid
Net interest margin(3)
$ 2,217
$ 2,585
$ 2,728
.93 %
.97
1.25 %
1.42
1.32 %
1.47
(1) Fully taxable-equivalent revenue is a method of presentation in which the tax savings achieved by investing in tax-exempt investment securities and certain leases are included in interest
income with a corresponding charge to income tax expense. This method facilitates the comparison of the performance of these assets. The adjustments are computed using a federal income
tax rate of 21% for periods ending in 2018, 2019 and 2020, adjusted for applicable state income taxes, net of the related federal tax benefit. The fully taxable-equivalent adjustments included in
interest income presented above were $17 million, $19 million and $57 million for the years ended December 31, 2020, 2019 and 2018, respectively, and were substantially related to tax-exempt
securities (state and political subdivisions).
(2) Non-U.S. non-interest-bearing deposits were $784 million, $820 million and $1,165 million as of December 31, 2020, 2019 and 2018, respectively.
(3) NIM is calculated by dividing fully taxable-equivalent NII by average total interest-earning assets.
State Street Corporation | 188
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (CONTINUED)
The following table summarizes changes in fully taxable-equivalent interest income and interest expense due
to changes in volume of interest-earning assets and interest-bearing liabilities, and due to changes in interest rates.
Changes attributed to both volumes and rates have been allocated based on the proportion of change in each
category.
Years Ended December 31,
2020 Compared to 2019
2019 Compared to 2018
Change in
Volume
Change in
Rate
Net (Decrease)
Increase
Change in
Volume
Change in
Rate
Net (Decrease)
Increase
(259) $
(24) $
(Dollars in millions; fully
taxable-equivalent basis)
Interest income related to:
Interest-bearing deposits with U.S. banks
Interest-bearing deposits with non-U.S. banks
Securities purchased under resale agreements
Trading account assets
Investment securities:
U.S. Treasury and federal agencies
State and political subdivisions
Other investments
Investment securities held-to-maturity
purchased under money market
liquidity facility
Loans
Lease financing
Other interest-earning assets
Total interest-earning assets
Interest expense related to:
Deposits:
Time
Savings
Non-U.S.
Securities sold under repurchase agreements
Short-term borrowings under money
market liquidity facility
Other short-term borrowings
Long-term debt
Other interest-bearing liabilities
Total interest-bearing liabilities
Net interest income
$
301 $
25
138
—
107
(5)
79
—
111
—
(81)
675
(144)
224
15
19
—
10
105
(56)
173
502 $
$
(560) $
(106)
(376)
(1)
(376)
(6)
(217)
117
(259)
—
(259)
(2,043)
(55)
(450)
(370)
(46)
101
(13)
(207)
(133)
(1,173)
(81)
(238)
(1)
(269)
(11)
(138)
117
(148)
—
(340)
(1,368)
(199)
(226)
(355)
(27)
101
(3)
(102)
(189)
(1,000)
(5)
(46)
—
199
(125)
(14)
—
27
(11)
(37)
(36)
24
33
(14)
(3)
39 $
19
75
1
66
(2)
(42)
—
61
—
60
277
77
149
31
21
—
3
29
(36)
36
(72) $
—
1
(4)
73
348
(71) $
(870) $
(368) $
Quarterly Summarized Financial Information (Unaudited)
(Dollars in millions,
except per share amounts; shares in thousands)
Total fee revenue
Interest income
Interest expense
Net interest income
Total other income
Total revenue
Provision for credit losses
Total expenses
Income before income tax expense
Income tax expense (benefit)
Net income
Net income available to common shareholders
Earnings per common share(1):
Basic
Diluted
Average common shares outstanding:
$
$
$
4Q20
3Q20
2Q20
1Q20
4Q19
3Q19
2Q19
1Q19
$
2,416 $
2,306 $
2,378 $
2,399 $
2,368 $
2,259 $
2,260 $
2,260
513
14
499
2
2,917
—
2,276
641
104
520
42
478
—
2,784
—
2,103
681
126
674
115
559
—
2,937
52
2,082
803
109
868
204
664
2
3,065
36
2,255
774
140
906
270
636
44
1,001
1,007
1,027
357
644
—
394
613
—
354
673
(1)
3,048
2,903
2,873
2,932
3
2
1
4
2,407
2,180
2,154
2,293
638
74
721
138
718
131
537 $
555 $
694 $
634 $
564 $
583 $
587 $
498 $
517 $
662 $
580 $
492 $
528 $
537 $
1.41 $
1.47 $
1.88 $
1.64 $
1.36 $
1.44 $
1.44 $
1.39
1.45
1.86
1.62
1.35
1.42
1.42
Basic
Diluted
352,974
352,586
352,157
353,746
361,439
366,732
373,773
377,915
357,719
357,168
356,413
357,993
365,851
370,595
377,577
381,703
Dividends per common share
$
.52 $
.52 $
.52 $
.52 $
.52 $
.52 $
.47 $
.47
(1) Basic and diluted earnings per common share for full-year 2020 and basic earnings per common share for full-year 2019 do not equal the sum of the four quarters for the year.
State Street Corporation | 189
15
14
29
1
265
(127)
(56)
—
88
(11)
23
241
101
182
17
18
—
4
25
37
384
(143)
635
127
508
452
1.20
1.18
ABS
AFS
AML
AOCI
ASU
EPS
ERM
ETF
EVE
FDIC
FHLB
FICC
FTE
FSOC
FX
GAAP
GCR
G-SIB
ACRONYMS
Asset-backed securities
Available-for-sale
Anti-money laundering
LCR(1)
LIHTC
Liquidity coverage ratio
Low income housing tax credits
LDA model
Loss distribution approach model
Accumulated other comprehensive income (loss)
LIBOR
London Interbank Offered Rate
Accounting Standards Update
AUC/A
Assets under custody and/or administration
AUM
BCC
bps
CAP
CCAR
CECL
CRD
CET1(1)
CFTC
CIS
COSO
CRO
CRPC
CVA
DOJ
DOL
E&A
Committee
Assets under management
Business Conduct Committee
Basis points
Capital adequacy process
Comprehensive Capital Analysis and Review
Current Expected Credit Loss
Charles River Development
Common equity tier 1
Commodity Futures Trading Commission
Corporate Information Security
Committee of Sponsoring Organizations of the
Treadway Commission
Chief Risk Officer
Credit Risk & Policy Committee
Credit valuation adjustment
Department of Justice
Department of Labor
Examining and Audit Committee
ECB
European Central Bank
EGRRCPA
Economic Growth, Regulatory Relief, and Consumer
Protection Act
EMEA
Europe, Middle East, and Africa
Earnings per share
Enterprise Risk Management
Exchange-Traded Fund
Economic value of equity
LTD
MBS
MRAC
MRC
MRM
MVG
NII
NIM
NOL
NSFR(1)
ORM
OTC
OTTI
PCA
PCAOB
PD(1)
P&L
RC
RWA(1)
SCB
SEC
SIFI
SLB
SLR(1)
SPDR
Long-term debt
Mortgage-backed securities
Management Risk and Capital Committee
Model Risk Committee
Model Risk Management
Model Validation Group
Net interest income
Net interest margin
Net Operating Loss
Net stable funding ratio
Operational risk management
Over-the-counter
Other-than-temporary-impairment
Prompt corrective action
Public Company Accounting Oversight Board
Probability-of-default
Profit-and-loss
Risk Committee
Risk-weighted asset
Stress Capital Buffer
Securities and Exchange Commission
Systemically important financial institutions
Stress Leverage Buffer
Supplementary leverage ratio
Spider; Standard and Poor's depository receipt
SPOE Strategy Single Point of Entry Strategy
Federal Deposit Insurance Corporation
Federal Home Loan Bank of Boston
SSIF
TCJA
State Street Intermediate Funding, LLC
Tax Cuts and Jobs Act
Fixed Income Clearing Corporation
TLAC(1)
Total loss-absorbing capacity
Fully taxable-equivalent
Financial Stability Oversight Council
Foreign exchange
Generally accepted accounting principles
Global credit review
Global systemically important bank
HQLA(1)
High-quality liquid assets
HRC
HTM
IDI
Human Resources Committee
Held-to-maturity
Insured Depository Institution
(1) As defined by the applicable U.S. regulations.
TMRC
TOPS
TORC
UCITS
UOM
VaR
VIE
WD
Trading and Markets Risk Committee
Technology and Operations Committee
Technology and Operational Risk Committee
Undertakings for Collective Investments in
Transferable Securities
Unit of measure
Value-at-Risk
Variable interest entity
Withdrawn
State Street Corporation | 190
GLOSSARY
Asset-backed securities: A financial security backed by collateralized
assets, other than real estate or mortgage backed securities.
Assets under custody and/or administration: Assets that we hold
directly or indirectly on behalf of clients under a safekeeping or
custody arrangement or for which we provide administrative services
for clients. To the extent that we provide more than one AUC/A service
(including back and middle office services) for a client’s assets, the
value of the asset is only counted once in the total amount of AUC/A.
Assets under management: The total market value of client assets
for which we provide investment management strategy services,
advisory services and/or distribution services generating management
fees based on a percentage of the assets’ market values. These client
assets are not included on our balance sheet. Assets under
management include managed assets lost but not liquidated. Lost
business occurs from time to time and it is difficult to predict the timing
of client behavior in transitioning these assets as the timing can vary
significantly.
Beacon: A multi-year program, announced in October 2015, to create
cost efficiencies through changes in our operational processes and to
further digitize our processes and interfaces with our clients.
Certificates of deposit: A savings certificate with a fixed maturity
date, specified fixed interest rate and can be issued in any
denomination aside from minimum investment requirements. A CD
restricts access to the funds until the maturity date of the investment.
Collateralized loan obligations: A security backed by a pool of debt,
primarily senior secured leveraged loans. CLOs are similar to
collateralized mortgage obligations, except for the different type of
underlying loan. With a CLO, the investor receives scheduled debt
payments from the underlying loans, assuming most of the risk in the
event borrowers default, but is offered greater diversity and the
potential for higher-than-average returns.
Commercial real estate: Property intended to generate profit from
capital gains or rental income. CRE loans are term loans secured by
commercial and multifamily properties. We seek CRE loans with
strong competitive positions in major domestic markets, stable cash
flows, modest leverage and experienced institutional ownership.
Deposit beta: A measure of how much of an interest rate increase is
expected to be passed on to client interest-bearing accounts, on
average.
Depot bank: A German term, specified by the country's law on
investment companies, which essentially corresponds to 'custodian'.
Doubtful: Doubtful loans and leases meet the same definition of
substandard loans and leases (i.e., well-defined weaknesses that
jeopardize repayment with the possibility that we will sustain some
loss) with the added characteristic that the weaknesses make
collection or liquidation in full highly questionable and improbable.
High-quality liquid assets: Cash or assets that can be converted into
cash at little or no loss of value in private markets and are considered
unencumbered.
Investment grade: A rating of loans and leases to counterparties with
strong credit quality and low expected credit risk and probability of
default. It applies to counterparties with a strong capacity to support
the timely repayment of any financial commitment.
Liquidity coverage ratio: The ratio of encumbered high-quality liquid
assets divided by expected total net cash outflows over a 30-day stress
period. A Basel III framework requirement for banks and bank holding
companies to measure liquidity, it is designed to ensure that certain
banking institutions, including us, maintain a minimum amount of
unencumbered HQLA sufficient to withstand the net cash outflow under
a hypothetical standardized acute liquidity stress scenario for a 30-day
stress period.
Net asset value: The amount of net assets attributable to each share/
unit of the fund at a specific date or time.
Net stable funding ratio: The ratio of the amount of available stable
funding relative to the amount of required stable funding. This ratio
should be equal to at least 100% on an ongoing basis.
Other-than-temporary-impairment: Impairment charge taken on a
security whose fair value has fallen below its carrying value on balance
sheet and its value is not expected to recover through the holding
period of the security.
Probability of default: A measure of the likelihood that a credit obligor
will enter into default status.
Qualified financial contracts: Securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements and any other contract determined by the FDIC to be a
qualified financial contract.
Risk-weighted assets: A measurement used to quantify risk inherent
in our on and off-balance sheet assets by adjusting the asset value for
risk. RWA is used in the calculation of our risk-based capital ratios.
Special mention: Loans and leases that consist of counterparties with
potential weaknesses that, if uncorrected, may result in deterioration of
repayment prospects.
Speculative: Loans and leases that consist of counterparties that face
ongoing uncertainties or exposure to business, financial, or economic
downturns. However, these counterparties may have financial
flexibility or access to financial alternatives, which allow for financial
commitments to be met.
Substandard: Loans and leases that consist of counterparties with
well-defined weakness that jeopardizes repayment with the possibility
we will sustain some loss.
Economic value of equity: A measure designed to estimate the fair
value of assets, liabilities and off-balance sheet instruments based on
a discounted cash flow model.
Supplementary leverage ratio: The ratio of our tier 1 capital to our
total leverage exposure, which measures our capital adequacy relative
to our on and off-balance sheet assets.
Exchange-Traded Fund: A type of exchange-traded investment
product that offer investors a way to pool their money in a fund that
makes investments in stocks, bonds, or other assets and, in return, to
receive an interest in that investment pool. ETF shares are traded on
a national stock exchange and at market prices that may or may not
be the same as the net asset value.
Exposure-at-default: A measure used in the calculation of regulatory
capital under Basel III. It can be defined as the expected amount of
loss a bank may be exposed to upon default of an obligor.
Global systemically important bank: A financial institution whose
distress or disorderly failure, because of its size, complexity and
systemic interconnectedness, would cause significant disruption to the
wider financial system and economic activity, which will be subject to
additional capital requirements.
Held-to-maturity investment securities: We classify investments in
debt securities as held-to-maturity only if we have the positive intent
and ability to hold those securities to maturity. Investments in debt
securities classified as held-to-maturity are measured subsequently at
amortized cost in the statement of financial position.
Total loss-absorbing capacity: The sum of our tier 1 regulatory
capital plus eligible external long-term debt issued by us.
Value-at-Risk: Statistical model used to measure the potential loss in
value of a portfolio that could occur in normal markets condition, over a
defined holding period, within a certain confidence level.
Variable interest entity: An entity that: (1) lacks enough equity
investment at risk to permit the entity to finance its activities without
additional financial support from other parties; (2) has equity owners
that lack the right to make significant decisions affecting the entity’s
operations; and/or (3) has equity owners that do not have an obligation
to absorb or the right to receive the entity’s losses or return.
State Street Corporation | 191
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
State Street has established and maintains disclosure controls and procedures that are designed to ensure
that material information related to State Street and its subsidiaries on a consolidated basis required to be disclosed
in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated
and communicated to State Street's management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. For the year ended December 31, 2020,
State Street's management carried out an evaluation, with the participation of the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of State Street's disclosure controls and
procedures. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and
Chief Financial Officer concluded that State Street's disclosure controls and procedures were effective as of
December 31, 2020.
State Street has also established and maintains internal control over financial reporting as a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external purposes in conformity with U.S. GAAP. In the ordinary course of business, State
Street routinely enhances its internal controls and procedures for financial reporting by either upgrading its current
systems or implementing new systems. Changes have been made and may be made to State Street's internal
controls and procedures for financial reporting as a result of these efforts. During the quarter ended December 31,
2020, no change occurred in State Street's internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, State Street's internal control over financial reporting.
State Street Corporation | 192
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management’s Report on Internal Control Over Financial Reporting
The management of State Street is responsible for establishing and maintaining adequate internal control over
financial reporting.
State Street’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. State Street’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of State Street;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America, and that
receipts and expenditures of State Street are being made only in accordance with authorizations of management
and directors of State Street; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of State Street’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of State Street’s internal control over financial reporting as of
December 31, 2020 based on the framework set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control - Integrated Framework (2013).
Based on that assessment, management concluded that, as of December 31, 2020, State Street’s internal
control over financial reporting is effective.
The effectiveness of State Street’s internal control over financial reporting as of December 31, 2020 has been
audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their accompanying
report, which follows this report.
State Street Corporation | 193
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of State Street Corporation
Opinion on Internal Control over Financial Reporting
We have audited State Street Corporation’s (the “Corporation”) internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In
our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the 2020 consolidated financial statements of the Corporation and our report dated February 19,
2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Corporation’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Corporation’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 19, 2021
State Street Corporation | 194
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning our directors will appear in our Proxy Statement for the 2021 Annual Meeting of
Shareholders, to be filed pursuant to Regulation 14A on or before April 30, 2021, referred to as the 2021 Proxy
Statement, under the caption "Election of Directors." Information concerning compliance with Section 16(a) of the
Exchange Act, if required, will appear in our 2021 Proxy Statement under the caption "Delinquent Section 16(a)
Reports." Information concerning our Code of Ethics for Senior Financial Officers and our Examining and Audit
Committee will appear in our 2021 Proxy Statement under the caption "Corporate Governance at State Street."
Such information is incorporated herein by reference.
Information about our executive officers is included under Part I.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item will appear in our 2021 Proxy Statement under the captions "Executive
Compensation" and "Non-Employee Director Compensation." Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information concerning security ownership of certain beneficial owners and management will appear in our
2021 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”
Such information is incorporated herein by reference.
RELATED STOCKHOLDER MATTERS
The following table presents the number of outstanding common stock awards, options, warrants and rights
granted by State Street to participants in our equity compensation plans, as well as the number of securities
available for future issuance under these plans, as of December 31, 2020. The table provides this information
separately for equity compensation plans that have and have not been approved by shareholders. Shares
presented in the table and in the footnotes following the table are stated in thousands of shares.
(Shares in thousands)
Plan category:
(a)
Number of securities
to be issued
upon exercise of
outstanding
options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding
options,
warrants and rights(1)
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
8,203 (2) $
18 (3)
8,221
—
—
—
19,163
—
19,163
(1) Excludes deferred stock awards and performance awards for which there is no exercise price.
(2) Consists of 5,686 thousand shares subject to deferred stock awards, zero shares subject to stock options, zero stock appreciation rights and 2,517 thousand
shares subject to performance awards (assuming payout at 100% for all awards, including awards for which performance is uncertain).
(3) Consists of shares subject to deferred stock awards.
Individual directors who are not our employees have received stock awards and cash retainers, both of which
may be deferred. Directors may elect to receive shares of our common stock in place of cash. If payment is in the
form of common stock, the number of shares is determined by dividing the approved cash amount by the closing
price on the date of the annual shareholders' meeting or date of grant, if different. All deferred shares, whether stock
awards or common stock received in place of cash retainers, are increased to reflect dividends paid on the common
stock and, for certain directors, may include share amounts in respect of an accrual under a terminated retirement
plan.
State Street Corporation | 195
Pursuant to State Street’s Deferred Compensation Plan for Directors, non-employee directors may elect to
defer the receipt of 0% or 100% of their (1) retainers, (2) meeting fees or (3) annual equity grant award. Non-
employee directors also may elect to receive their retainers in cash or shares of common stock. Non-employee
directors who elect to defer the cash payment of their retainers or meeting fees may choose from four notional
investment fund returns for such deferred cash. Deferrals of common stock are adjusted to reflect the hypothetical
reinvestment in additional shares of common stock for any dividends or distributions on State Street common stock.
Deferred amounts will be paid (a) as elected by the non-employee director, on either the date of their termination of
service on the Board or on the earlier of such termination and a future date specified, and (b) in the form elected by
the non-employee director as either a lump sum or in installments over a two- to five-year period.
Stock awards totaling 209,937 shares of common stock were outstanding as of December 31, 2020; awards
made through June 30, 2003, totaling 18,324 shares outstanding as of December 31, 2020, have not been
approved by shareholders. There are no other equity compensation plans under which our equity securities are
authorized for issuance that have been adopted without shareholder approval. Awards of stock made or retainer
shares paid to individual directors after June 30, 2003 have been or will be made under our 1997, 2006 or 2017
Equity Incentive Plan, which were approved by shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information concerning certain relationships and related transactions and director independence will appear in
our 2021 Proxy Statement under the caption “Corporate Governance at State Street.” Such information is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information concerning principal accounting fees and services and the Examining and Audit Committee's pre-
approval policies and procedures will appear in our 2021 Proxy Statement under the caption “Examining and Audit
Committee Matters.” Such information is incorporated herein by reference.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of State Street are included in Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income - Years ended December 31, 2020, 2019 and 2018
Consolidated Statement of Comprehensive Income - Years ended December 31, 2020, 2019 and 2018
Consolidated Statement of Condition - As of December 31, 2020 and 2019
Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 2020, 2019 and
2018
Consolidated Statement of Cash Flows - Years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
Certain schedules to the consolidated financial statements have been omitted if they were not required by
Article 9 of Regulation S-X or if, under the related instructions, they were inapplicable, or the information was
contained elsewhere herein.
(A)(3) EXHIBITS
The exhibits listed in the Exhibit Index preceding the signature page in this Form 10-K are filed herewith
or are incorporated herein by reference to other SEC filings.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
State Street Corporation | 196
* 3.1
* 3.2
* 4.1
* 4.2
* 4.3
* 4.4
* 4.5
EXHIBIT INDEX
Restated Articles of Organization, as amended (filed as Exhibit 3.1 to State Street’s Quarterly
Report on Form 10-Q (File No. 001-07511) for the quarter ended September 30, 2018 filed with
the SEC on October 31, 2018 and incorporated herein by reference)
By-laws, as amended (filed as Exhibit 3.1 to State Street's Current Report on Form 8-K (File
No.001-07511) filed with the SEC on February 20, 2020 and incorporated herein by reference)
Description of Securities Registered under Section 12 of the Exchange Act
Deposit Agreement, dated March 4, 2014, among State Street Corporation, American Stock
Transfer & Trust Company, LLC (as depositary), and the holders from time to time of depositary
receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-07511)
dated March 4, 2014 filed with the SEC on March 4, 2014 and incorporated herein by reference)
Deposit Agreement dated May 21, 2015, among State Street Corporation, American Stock
Transfer & Trust Company, LLC (as depositary) and the holders from time to time of depositary
receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-7511)
dated May 21, 2015 filed with the SEC on May 21, 2015 and incorporated herein by reference)
Deposit Agreement dated April 11, 2016, among State Street Corporation, American Stock
Transfer & Trust Company, LLC (as depositary) and the holders from time to time of depositary
receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-7511)
dated April 11, 2016 filed with the SEC on April 11, 2016 and incorporated herein by reference)
Deposit Agreement dated September 27, 2018, among State Street Corporation, American Stock
Transfer & Trust Company, LLC (as depositary) and the holders from time to time of the
depositary receipts (filed as Exhibit 4.3 to State Street’s Current Report on Form 8-K (File No.
001-07511) filed with the SEC on September 27, 2018 and incorporated herein by reference)
(Note: None of the instruments defining the rights of holders of State Street’s outstanding long-
term debt are in respect of indebtedness in excess of 10% of the total assets of State Street and
its subsidiaries on a consolidated basis. State Street hereby agrees to furnish to the SEC upon
request a copy of any other instrument with respect to long-term debt of State Street and its
subsidiaries.)
* 10.1†
State Street's Management Supplemental Retirement Plan, Amended and Restated, as amended
(filed as Exhibit 10.5 to State Street’s Quarterly Report on Form 10-Q (File No. 001-07511) for the
quarter ended March 31, 2019 filed with the SEC on May 1, 2019 and incorporated herein by
reference)
* 10.2†
State Street's Executive Supplemental Retirement Plan, as amended and restated, and First,
Second and Third Amendments thereto
* 10.3†
* 10.4†
Supplemental Cash Incentive Plan, as amended, First and Second Amendments thereto, and
form of award agreement thereunder (filed as Exhibit 10.2 to State Street’s Quarterly Report on
Form 10-Q (File No. 001-07511) for the quarter ended March 31, 2020 filed with the SEC on April
28, 2020 and incorporated herein by reference)
State Street’s 2006 Equity Incentive Plan, as amended, and forms of award agreements
thereunder (filed as Exhibit 10.8 to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2014 and filed with the SEC on February 20, 2015
and incorporated herein by reference)
* 10.5†
State Street's 2017 Stock Incentive Plan, and forms of award agreements thereunder (filed as
Exhibit 10.3 to State Street’s Quarterly Report on Form 10-Q (File No. 001-07511) for the quarter
ended March 31, 2020 filed with the SEC on April 28, 2020 and incorporated herein by reference)
State Street Corporation | 197
* 10.6†
* 10.7†
* 10.8†
* 10.9
State Street’s Management Supplemental Savings Plan, Amended and Restated, as amended
(filed as Exhibit 10.10 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the
year ended December 31, 2016 filed with the SEC on February 17, 2017 and incorporated herein
by reference)
Deferred Compensation Plan for Directors of State Street Corporation, Restated January 1, 2007,
as amended (filed as Exhibit 10.12 to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2011 filed with the SEC on February 27, 2012 and
incorporated herein by reference)
Deferred Compensation Plan for Directors of State Street Corporation, Restated January 1, 2021,
as amended (filed as Exhibit 10.1 to State Street's Quarterly Report on Form 10-Q (File No.
001-07511) for the quarter ended June 30, 2020 filed with the SEC on July 27, 2020 and
incorporated herein by reference)
Deferred Prosecution Agreement dated January 17, 2017 between State Street Corporation and
the U.S. Department of Justice and United States Attorney for the District of Massachusetts (filed
as Exhibit 10.14 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year
ended December 31, 2016 filed with the SEC on February 17, 2017 and incorporated herein by
reference)
* 10.10†
Description of compensation arrangements for non-employee directors
* 10.11†
* 10.12A†
* 10.12B†
* 10.12C†
* 10.12D†
* 10.13†
* 10.14†
State Street’s Executive Compensation Trust Agreement dated June 1, 2002 (Rabbi Trust), as
amended (filed as Exhibit 10.22 to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2017 filed with the SEC on February 26, 2018 and
incorporated herein by reference)
Form of Indemnification Agreement between State Street Corporation and each of its directors
(filed as Exhibit 10.18A to State Street's Annual Report on Form 10-K (File No. 001-07511) for the
year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein
by reference)
Form of Indemnification Agreement between State Street Corporation and each of its executive
officers (filed as Exhibit 10.18B to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and
incorporated herein by reference)
Form of Indemnification Agreement between State Street Bank and Trust Company and each of
its directors (filed as Exhibit 10.18C to State Street's Annual Report on Form 10-K (File No.
001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and
incorporated herein by reference)
Form of Indemnification Agreement between State Street Bank and Trust Company and each of
its executive officers (filed as Exhibit 10.18D to State Street's Annual Report on Form 10-K (File
No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014
and incorporated herein by reference)
Form of employment agreement for executive officers in the United States and Hong Kong (filed
as Exhibit 10.1 to State Street’s Quarterly Report on Form 10-Q (File No. 001-07511) for the
quarter ended March 31, 2020 filed with the SEC on April 28, 2020 and incorporated herein by
reference)
Employment Letter Agreements entered into with Andrew Erickson dated August 21, 2012,
November 19, 2012, and May 25, 2016 (filed as Exhibit 10.2 to State Street’s Quarterly Report on
Form 10-Q (File No. 001-07511) for the quarter ended March 31, 2018 filed with the SEC on May
3, 2018 and incorporated herein by reference)
State Street Corporation | 198
* 10.15†
Employment Letter Agreement entered into with Eric Aboaf dated September 22, 2016 (filed as
Exhibit 10.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated September
28, 2016 filed with the SEC on September 28, 2016 and incorporated herein by reference)
* 10.16†
* 10.17†
* 10.18†
* 10.19†
* 21
* 23
31.1
31.2
32
* 101.INS
* 101.SCH
* 101.CAL
* 101.DEF
* 101.LAB
* 101.PRE
* 104
Employment Letter Agreement entered into with Francisco Aristeguieta dated March 11, 2019
(filed as Exhibit 10.4 to State Street's Quarterly Report on Form 10-Q (File No. 001-07511) for the
quarter ended March 31, 2020 filed with the SEC on April 28, 2020 and incorporated herein by
reference)
Confidentiality, Intellectual Property and Restrictive Covenant Protective Agreement entered into
with Francisco Aristeguieta dated July 15, 2019 (filed as Exhibit 10.1 to State Street's Quarterly
Report on Form 10-Q (File No. 001-07511) for the quarter ended March 31, 2020 filed with the
SEC on April 28, 2020 and incorporated herein by reference)
State Street Corporation Incentive Compensation Program, Effective January 1, 2019 (filed as
Exhibit 10.24 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year
ended December 31, 2018 filed with the SEC on February 21, 2019 and incorporated herein by
reference)
State Street Corporation Cash Award Plan, Effective January 1, 2019 (filed as Exhibit 10.25 to
State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31,
2018 filed with the SEC on February 21, 2019 and incorporated herein by reference)
Subsidiaries of State Street Corporation
Consent of Independent Registered Public Accounting Firm
Rule 13a-14(a)/15d-14(a) Certification of Chairman, President and Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certifications
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embedded within the inline XBRL document
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Cover Page Interactive Data File (formatted as Inline XBRL and included within the Exhibit 101
attachments)
† Denotes management contract or compensatory plan or arrangement
* Exhibit filed with the SEC, but not printed herein
Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline Extensible Business
Reporting Language): (i) consolidated statement of income for the years ended December 31, 2020, 2019 and
2018, (ii) consolidated statement of comprehensive income for the years ended December 31, 2020, 2019 and
2018, (iii) consolidated statement of condition as of December 31, 2020 and December 31, 2019, (iv) consolidated
statement of changes in shareholders' equity for the years ended December 31, 2020, 2019 and 2018,
(v) consolidated statement of cash flows for the years ended December 31, 2020, 2019 and 2018, and (vi) notes to
consolidated financial statements.
State Street Corporation | 199
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, on February 19, 2021, hereunto duly
authorized.
SIGNATURES
STATE STREET CORPORATION
By /s/ ERIC W. ABOAF
ERIC W. ABOAF,
Executive Vice President and
Chief Financial Officer
By /s/ IAN W. APPLEYARD
IAN W. APPLEYARD,
Executive Vice President, Global Controller and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 19, 2021 by the following persons on behalf of the registrant and in the capacities indicated.
OFFICERS:
/s/ RONALD P. O'HANLEY
RONALD P. O'HANLEY,
Chairman, President and Chief Executive Officer
/s/ ERIC W. ABOAF
ERIC W. ABOAF,
Executive Vice President and
Chief Financial Officer
/s/ IAN W. APPLEYARD
IAN W. APPLEYARD,
Executive Vice President, Global Controller and
Chief Accounting Officer
DIRECTORS:
/s/ MARIE A. CHANDOHA
MARIE A. CHANDOHA
/s/ PATRICK de SAINT-AIGNAN
PATRICK de SAINT-AIGNAN
/s/ LYNN A. DUGLE
LYNN A. DUGLE
/s/ AMELIA C. FAWCETT
AMELIA C. FAWCETT
/s/ WILLIAM C. FREDA
WILLIAM C. FREDA
/s/ RONALD P. O'HANLEY
RONALD P. O'HANLEY
/s/ SARA MATHEW
SARA MATHEW
/s/ WILLIAM L. MEANEY
WILLIAM L. MEANEY
/s/ SEAN O'SULLIVAN
SEAN O'SULLIVAN
/s/ RICHARD P. SERGEL
RICHARD P. SERGEL
/s/ GREGORY L. SUMME
GREGORY L. SUMME
State Street Corporation | 200
EXHIBIT 31.1
I, Ronald P. O'Hanley, certify that:
1.
I have reviewed this Annual Report on Form 10-K of State Street Corporation;
RULE 13a-14(a)/15d-14(a) CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present, in all material respects, the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: February 19, 2021
By:
/s/ RONALD P. O'HANLEY
Ronald P. O'Hanley,
Chairman, President and Chief Executive Officer
EXHIBIT 31.2
I, Eric W. Aboaf, certify that:
1.
I have reviewed this Annual Report on Form 10-K of State Street Corporation;
RULE 13a-14(a)/15d-14(a) CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present, in all material respects, the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: February 19, 2021
By:
/s/ ERIC W. ABOAF
Eric W. Aboaf,
Executive Vice President and Chief Financial Officer
SECTION 1350 CERTIFICATIONS
EXHIBIT 32
To my knowledge, this Report on Form 10-K for the period ended December 31, 2020 fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in this
Report fairly presents, in all material respects, the financial condition and results of operations of State Street
Corporation.
Date: February 19, 2021
By:
Date: February 19, 2021
By:
/s/ RONALD P. O'HANLEY
Ronald P. O'Hanley,
Chairman, President and Chief Executive Officer
/s/ ERIC W. ABOAF
Eric W. Aboaf,
Executive Vice President and Chief Financial Officer
A P P E N D I C E S
A P P E N D I X 1
C O R P O R A T E
I N F O R M A T I O N
C O R P O R A T E H E A D Q U A R T E R S
T R A N S F E R A G E N T
State Street Corporation
State Street Financial Center
One Lincoln Street
Boston, Massachusetts 02111-2900
Website: www.statestreet.com
General inquiries: +1 617 786 3000
A N N U A L M E E T I N G
Wednesday, May 19, 2021, 9:00 a.m.
conducted online through a live audiocast at:
www.virtualshareholdermeeting.com/STT2021
Registered shareholders wishing to
change name or address information on
their shares, transfer ownership of stock,
deposit certificates, report lost certificates,
consolidate accounts, authorize direct deposit
of dividends, or receive information on our
dividend reinvestment plan should contact:
American Stock Transfer & Trust Co., LLC
c/o Operations Center
6201 15th Avenue
Brooklyn, New York 11219
Phone: +1 800/937-5449
Website: www.astfinancial.com
E-mail: help@astfinancial.com
S T O C K L I S T I N G S
State Street’s common stock is listed on the New
York Stock Exchange under the ticker symbol STT.
STATE STREET | 2020 ANNUAL REPORT S H A R E H O L D E R I N F O R M A T I O N
For timely information about State Street’s
consolidated financial results and other matters
of interest to shareholders, and to request
copies of our news releases and financial
reports by mail, please visit our website at:
investors.statestreet.com
For copies of our Forms 10-Q, quarterly
earnings press releases, Forms 8-K, or
additional copies of this Annual Report,
please visit our website or write to Investor
Relations at Corporate Headquarters at:
IR@statestreet.com
Copies are provided without charge.
Investors and analysts interested in additional
financial information may contact our
Investor Relations department at Corporate
Headquarters, telephone +1 617 664 3477.
STATE STREET | 2020 ANNUAL REPORT A P P E N D I X 2
B O A R D O F
D I R E C T O R S
R O N A L D P. O ’ H A N L E Y
Chairman and
Chief Executive Officer,
State Street Corporation
P AT R I C K D E S A I N T- A I G N A N
Retired Managing Director
and Advisory Director,
Morgan Stanley
A M E L I A C . F A W C E T T
Lead Director, State Street
Corporation and Chairman,
Kinnevik AB
M A R I E A . C H A N D O H A
Retired President and
Chief Executive Officer,
Charles Schwab Investment
Management, Inc.
W I L L I A M C . F R E D A
Retired Senior Partner and
Vice Chairman, Deloitte LLP
S A R A M AT H E W
Retired Chairman and Chief
Executive Officer, Dun &
Bradstreet Corporation
STATE STREET | 2020 ANNUAL REPORT W I L L I A M L . M E A N E Y
President, Chief Executive
Officer, and Director, Iron
Mountain Inc.
S E A N O ’ S U L L I V A N
Retired Group Managing Director
and Group Chief Operating
Officer, HSBC Holdings, plc
J O H N B . R H E A
Partner, Centerview
Partners LLC
R I C H A R D P. S E R G E L
Retired President and
Chief Executive Officer,
North American Electric
Reliability Corporation
J U L I O A . P O R TA L AT I N
Former President and Chief
Executive Officer, Mercer
Consulting Group, Inc.
G R E G O R Y L . S U M M E
Managing Partner and Founder,
Glen Capital Partners, LLC
STATE STREET | 2020 ANNUAL REPORT A P P E N D I X 3
S T A T E S T R E E T
W O R L D W I D E
F R A N C E
Paris
G E R M A N Y
Frankfurt
Leipzig
Munich
I N D I A
Bangalore
Chennai
Coimbatore
Hyderabad
Mumbai
Pune
Vijayawada
I R E L A N D
Dublin
Kilkenny
Naas
I T A L Y
Milan
Turin
J A P A N
Fukuoka
Tokyo
A U S T R A L I A
Melbourne
Sydney
A U S T R I A
Vienna
B E L G I U M
Brussels
B R A Z I L
Sao Paulo
B R U N E I
D A R U S S A L A M
Bandar Seri
Begawan
C A N A D A
Montreal
Toronto
Vancouver
C A Y M A N
I S L A N D S
Grand Cayman
C H A N N E L
I S L A N D S
Guernsey
Saint Peter Port
Jersey
Saint Helier
M A L A Y S I A
Kuala Lumpur
T A I W A N
Taipei City
N E T H E R L A N D S
Amsterdam
T H A I L A N D
Bangkok
N O R W A Y
Trondheim
P E O P L E ’ S
R E P U B L I C
O F C H I N A
Beijing
Hangzhou
Hong Kong
Shanghai
P O L A N D
Gdansk
Krakow
S A U D I A R A B I A
Riyadh
S I N G A P O R E
Singapore
S O U T H K O R E A
Seoul
U N I T E D A R A B
E M I R A T E S
Abu Dhabi
U N I T E D K I N G D O M
England
London
Scotland
Edinburgh
U N I T E D S T A T E S
Arizona
Scottsdale
California
Irvine
Los Angeles
Redwood City
Sacramento
San Francisco
Connecticut
Stamford
Georgia
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Illinois
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Hoffman Estates
Indiana
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New York
New York City
North Carolina
Charlotte
Pennsylvania
Berwyn
Texas
Austin
L U X E M B O U R G
Luxembourg
S W I T Z E R L A N D
Zurich
STATE STREET | 2020 ANNUAL REPORT We at State Street do not take our relationship with the Earth for granted.
Sustainability and environmental stewardship are two tenets embedded in all
facets of our business — from our strategy to our offerings and how we work.
Parts of this report are printed on Rolland Enviro,® a 100% post-consumer
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Important Information
©2021 State Street Corporation
All rights reserved.
3485881.1.1.GBL.RTL Expiration date: 3/31/2022
This document is for general, marketing, and/or informational purposes only. It is not intended to provide legal, tax, accounting, or investment advice, and it is not an offer or solicitation
to buy or sell any registered product, service, or securities or any financial interest, nor does it constitute any binding contractual arrangement or commitment at any time. Products and
services may be provided in various countries by the subsidiaries and joint ventures of State Street. Each is authorized and regulated as required within each jurisdiction. This should
not be construed as an offer or solicitation of securities or services or an endorsement thereof in any jurisdiction or in any circumstance that is otherwise unlawful or not authorized.
To the extent it may be deemed to be a financial promotion under non-U.S. jurisdictions, it is provided for use by institutional investors only and not for onward distribution to, or to be
relied upon by, retail investors.
This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and
actual results or developments may differ materially from those projected. The information provided does not constitute investment advice and it should not be relied on as such. It
does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. Investing involves risk including the risk of loss of principal. You
should consult your tax and financial advisor.
This information is provided “as is” and State Street Corporation and its subsidiaries and affiliates (“State Street”) disclaims any and all liability and makes no guarantee, representation,
or warranty of any form or in connection with the use of this communication or related material. No permission is granted to reprint, sell, copy, distribute, or modify any material herein,
in any form or by any means, without the prior written consent of State Street.
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